A few weeks ago, I discussed the possibility of small caps playing catch-up to the leading tech sector. But now, it seems like the move in small caps could create some market fear that’s not currently being priced in.
To see what I mean, let’s first look at the chart of QQQ, the tech ETF:
As you can see, we are still near highs and looking ready to continue a bull trend. Moreover, the MACD cross from about 3 weeks ago seems to be close to flipping back into the bull trend.
But, when I look at IWM, my main small cap ETF, I see a completely different story:
Here we have an ETF that’s trading near lows and possibly looks like it could liquidate. The failure of FRC had a big negative impact on financials, which are a large part of the small caps. Additionally, the recent pullback in oil prices has negatively impacted energy companies. Let’s look at KRE, a regional bank ETF and XLE, an energy company ETF to see the recent weakness:
Overall, this doesn’t look great. But that doesn’t mean there’s a guarantee for more downside. I’m getting mixed signals here with tech near highs, small caps near lows, and the VIX making new lows:
But when the VIX is low and signals are mixed, it means that I can get options cheaper and define my risk while also leveraging my ideas! This is a great time to look for stocks selectively, as I do every week in my Outlier Watch List! Those stocks are on my short list for adding positions via the defined risk and leverage of options, so now is a great time to take a look at those ideas and see what the professionals are looking at in this market.
So please go to http://optionhotline.com to review how I traditionally apply technical signals, volatility analysis, and probability analysis to my options trades. As always, if you have any questions, never hesitate to reach out.