LordWrymouth

IWM Russel 2000 - No Love For Small Caps

Short
AMEX:IWM   iShares Russell 2000 ETF
I hadn't really looked at IWM until a follower asked me about it on Twitter, and after thinking about it for a few hours and comparing it against SPY and QQQ, I realized that it's not that IWM is lagging, it's that it's not going to follow the recent mania.

Some wisdom I heard recently is that breadth is important in markets because it indicates a large amount of liquidity has entered or left, indicating the emergence of new bull and bear markets.

Unfortunately, with the exception of Friday alone, breadth has been terrible in this debt ceiling crisis pump, which means even though Nasdaq is flirting with 15,000 and SPX with 4,300, it's a bullish impulse within bearish macro conditions.

There's a lot of trouble on the horizon with the 2024 Presidential Election close enough that the game has to played and the trouble brewing in mainland China with the Communist Party being about to fall and the globalist bloc struggling to either cuckold or depose Xi Jinping.

What a bullish impulse in a bearish macro framework means for small caps is that although Microsoft, Nvidia, Google, Tesla, Amazon, Apple might pump, liquidity is not going to be going "risk on" on small caps and zombie corporations.

Instead, prices will be driven lower because as they sell the cycle highs in the blue chips, they'll be bidding a portion of their profits with lowball asks on small caps for the purposes of pumping them, and then dumping them, on retail's head after interest in the big names has become exhausted.

Those very large lowball asks will lead the algorithms to drive price towards them because the algo is designed to generate volume.

But on small caps, unless the company has significantly exceptional fundamentals, your expectations on how high it can go and how long it can go for during a reversal will have to be quite reserved.

In other words, if you missed the July '20 to October '22 pump on IWM then you missed the train and it's never coming back.

It is what it is. Just accept it.

You can make a lot of money trading puts on this thing on the way down.

It just means that if it really does bounce around $125, your expectation for where it can bounce to shouldn't be a new ATH, but probably back to $170.

Again, you can make a lot of money trading calls from $125 to $170.

But if you want to bUy tEh bOtToM fOr thE mOaSS and think you're going to get a 50 bagger instead of a "tiny little" 5 bagger, you're going to blow your account.

And if that's who you are, it's probably better you blow your account and go back to working a real job and learn the value of money again.

So here's the trade.

This recent breakout looks like it's just a consolidation squeeze. It's going down. But it might screw around for a while and could be as annoying as trading over $200 again. It's really hard to say.

Areas you'd really like to short and/or buy puts are called $188 or $190.

You'll need 4-6 months or so to get to the $127 level.

But either way, the R/R on a $188 short with a $212 stop and a $130 target is almost 7 to 1.

Go do sports betting for a while and enlighten to how hard it is to hit a +700 if you don't think that's a worthwhile trade.

You need to quit wanting to get rich quick. Getting rich isn't important and it isn't even valuable. What you need is to wake up to what's important in life and what you're really here to do.

And that question is answered in mankind's traditions and that 5,000 year old culture sitting in Mainland China after the CCP is utterly annihilated.

Comment:
Frankly speaking IWM might be a fine $10-12 scalp to the $188 level. Look for low of the week tomorrow and maybe Wednesday


Be careful with taking equity positions on small caps. If this call is right then things are forming a sell-side order block and it'll be a while before they come back to where they are.
Comment:
The thesis is in play.

Now the question is to find the time and price to buy puts without getting guillotined if the bear move isn't arranged yet.

Comment:
Since IWM and the Russel are really more like the "breadth ETF," a bearish impulse starting this month would mean money comes OUT of the markets at large, which should mean stuff like +USD +Yields +Oil rather than +equities.

It's notable that we got to the $188 area but no signs of a reversal yet, however.
Comment:
This daily outside bar and rejection of the $188 zone may be the short signal this trade and call is set up to look for.

Comment:
IWM on the daily has:

Been held back at the $188 area.
Made another high.
Broken to the downside


Which gives the conditions required to go puts/short.

Notably IWM puts only have a 20% IV right now with VIX so suppressed and price ranging.
Comment:
Is IWM bullish or is it just making a wick play on the monthly?


We're about to find out I suppose.

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