Have Small Cap ETFs Bottomed Yet? (IWM, TNA, TZA)

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May 23, 2012 2:47pm NYSE:IWM NYSE:TNA

David Banister: The IWM ETF represents the Russell 2000 small cap growth index. This ETF peaked at 84.66 this spring and has fallen in the the 74′s before the recent two day bounce. What we are looking at is a possible 5 wave rally from October into March

, and now a possible 3 wave correction (Wave 2) of 38-50% of that entire 5 wave rally.  Elliott Wave theory is broken down into 5 wave and 3 wave movements in the markets and individual stocks, where a full 5 wave pattern in a Bull market is obviously bullish and a 3 wave pattern corrective of the prior 5 wave rally.

The small cap index peaked with the reset of the market in March of this year, interestingly about 3 years into the Bull Market. The first low so far was a  typical 38% fibonacci retracement of the rally from October through early March.  The next low pivot would be a 50% pullback.  This would place the IWM target around 72.10 plus minus some pennies.

In the 72′s that would represent a C wave decline that is equivalent to 161% of the A wave decline in the chart below from the 84.66 highs. ABC declines are common in a Bull cycle and are designed to throw investors off the back of the Bull. Normally the C wave is where investors finally throw in the towel near the bottom, as we saw in early October of 2011.  I wrote an article on October 3rd last year, one day before the bottom outlining why a massive rally was about to ensue.  Will we see the same thing now?

Well, this correction could indicate one more possible decline of 4-5% worst case should this projection in the chart below fulfill.

That said, the 38% retracement we have had so far would also qualify as a Wave 2 low last Friday. Therefore, this outline is to give you some indications of what to watch in case we drop further and pierce those lows.  If we can hold this rally and rebound smartly again, then the C wave of the ABC is likely over and we can get an all clear to be more aggressive.

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Related: Direxion Daily Small Cap Bear 3X Shares ETF (NYSEARCA:TZA), iShares Russell 2000 ETF (NYSEARCA:IWM), Direxion Daily Small Cap Bull 3X Shares ETF (NYSEARCA:TNA).

Written By David Banister From The Market Trend Forecast

David Banister – We believe that markets move largely based on important swings in sentiment, crowd behavioral patterns, Fibonacci Re-tracements, Cycles, and other ephemeral catalysts.  The headlines explain what just happened in the market, but they do not predict the next moves up or down in the indices, sectors, or commodities.  As an investor, you need to be armed with tools in advance of major moves that are accurate, and TMTF will assist you in being prepared as an investor for volatile markets both on the upside and downside. We have a wealth of technical analysis experience to take advantage of the crowd behavior in the markets.  Our Chief Strategist, David Banister,  has been quoted and or written articles on CBS Marketwatch.com, 321gold.com, TheStreet.Com, SafeHaven.com, Kitco.com, Stockhouse.com, Theaureport.com, along with other well known investment sites.  David has been a past guest on the national radio show “Money Matter$”.  Chris Vermeulen of Thegoldandoilguy.com met David in 2008 as the financial crisis was unfolding.  After numerous months of following the forecasts and trading abilities of Mr. Banister, Chris suggested that a joint venture be formed and we offer a trading service to a finite and select group of partners (subscribers).  ActiveTradingPartners.Com was formed in July of 2009, and with the success of that service, we now launch The Market Trend Forecast in March of 2010.

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