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:

Get Keith's Market Maker Cheat Sheet here for free!

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.

Keith Harwood