I believe there is a case to be made
for a potential short opportunity on the IWM. Historically small cap
stocks show a statistical performance edge through the month of
January that tapers off through February by nearly two-thirds. Coupled with this is the historical
performance of the post-election market in the month of February.
February's post-election year performance since 1950 is miserable, ranking dead last for DJIA, S&P 500, NASDAQ, Russell 1000 and Russell 2000. Average losses have been sizable: -1.6%, -2.0%, -4.4%, -2.2%, and -2.4% respectively. February 2001 and 2009 were exceptionally brutal. NASDAQ has not posted a post-election year February gain since 1985.
If this continues to hold true it is worth keeping an eye on the Russell. Given that the Russell has recently printed an all time high, I thought it would be apropos to use the core concept of the methodology Darvas laid out as a reference point for this set-up. Today there was a completion of a box between the ATH of 90.7 and the box low of 89.15. The risk for this trade is easily defined, 1.55 between trigger and stop. The potential of a 45-5% pullback from the high would give a risk/reward ratio of 2-1 or 3-1. What gives additional merit to the potential of this trade is the current breadth extreme the market is under.
 |
| IWM Short Set-Up |
No comments:
Post a Comment