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Popular Small-Cap ETF Could Rally Some More


By most accounts, 2013 has been an excellent year in which to be long exchange traded funds that own small-cap stocks. Total return and inflows data confirm as much.

Take the example of the $26.9 billion iShares Russell 2000 ETF (IWM) , the largest small-cap ETF by assets. Not only has IWM hauled in nearly $4 billion just this year, but the fund has surged nearly 36%, topping the S&P 500 by almost 700 basis points. [Small-Cap ETFs Power U.S. Stocks Higher]

More upside for IWM could be on the way if one technical analyst is correct in his assessment of the ETF. The analyst notes that with Tuesday’s jump, the Russell 2000, IWM’s underlying index, has clearly broken out to new highs.

“With Tuesday’s advance, the Russell has now clearly broken out to new highs. Drawing a trendline connecting the weekly highs on a chart of the iShares Russell 2000 ETF, the next stop could be around $116,” writes Deron Wagner of Morpheus Trading Group.

IWM closed at $113.45 on Wednesday and is up 2.2% in the past month.

Wagner’s call for further upside in IWM comes just as December, often a favorable time of year to be long small-caps, is about to start. The significance of the imminent flipping of the calendar is the following: The January Effect is seemingly starting earlier and earlier.

The January Effect is the phenomenon in which small-caps lead large-caps in January (or starting in December) and that often sets stocks up for strong overall annual performance. [Prepping for the January Effect With ETFs]

From Dec. 3, 2012 to Jan. 31, 2013, IWM climbed 10.2% while the S&P 500 was higher by 6.6%.

iShares Russell 2000 ETF

Tom Lydon’s clients own shares of IWM.