Small Caps – IWM

Update 5/19

We are starting to see a potential bottom from May 17th, shown below on the daily which is now in line with the 3 and 5 year average (discussed below).


The green and purple lines show the 3 and 5 year averages for May and if we are mirroring those patterns, next week should have more upside


Update 5/18

Yesterday as mentioned was a significant down day, it has been the 2nd worst day of May on average and for 2017 it is now the worst day of the month.   Now that we have that out of the way, the 3,5,10 and inception averages are still in play.  Price usually makes a lower low around 5/17 which is did yesterday.  Only the 10 year average has another lower low next week but with a 2 week window you might be able to overcome another draw down.

Today we have a small bounce which is nice, +.27% as I type.  On average 5/18 is green so we are still on par with an average May and if that is the case, some upside may be still in the cards for the remaining 2 weeks


May 16th trade idea

Hearing a lot of chatter through social media about how small caps are currently trading in the tightest range in the last 20+ years.  While nobody really knows the direction, we are in a bull market so lets assume that will be to the upside

The below image shows similar bottoming action on all major time frames.  We have the 3,5 and 10 year along inception shown below.


The 3 and 5 year show bottoming action on deck this week while the 10 year shows one more lower low next week while the inception line basically double bottoms off this weeks low.   They all have one thing in common, an end of month rally could be in the cards.

Lets break these numbers down even further.   The below image is the raw data for every trading day for the IWM ETF in the month of May


The sum of all averages for each time frame can be seen here to make it easier for discussion purposes.   Today is 5/16 and the sum of all averages for that time frame would be -0.08% (inception) -0.75% (10 year) -1.85% (5 year) -0.55% (3 year)


If you take a look at the May line chart for 2017, which is on a closing basis, we are down about 53 cent or -0.38%.   So its very close to the 3,10 and inception averages half way through May


Now that we have some idea that there is price correlation with the sum of all averages lets zoom in and focus on what is left for this month from past results just incase we continue on this path.  The next image is the sum of all averages from 5/17 to end of May


Since inception from 5/16, price was basically flat so the average upside left is +2.82%

The 10 year was down around .75% so would have an average upside of +2.02% left

The 5 year was down the most and recovered very strong with +2.23% upside left

The 3 year is the closest to the 2017 price action and has +3.18% upside

That’s an average upside of +2.56% for all 4 time frames (would put price around $142 to end May)

Another thing I noticed is tomorrow is one of the worst days of the month and while some people like to focus on trading days vs days on the calendar,  5/17 no matter what trading day of that particular year, it hasn’t been very good.

So I will be watching for some downside tomorrow, and if it comes, I will put on some end of May options (June 2nd 140cs) for hopefully some nice profit.


Lastly here is the daily chart showing possible support at the 61.8 Fib with a nice rounding formation looking to retest that high of $141.82.  If my plan comes to fruition, the right side of this rounding bottom will complete in the next two weeks.



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