As we edge towards Inauguration Day on Friday, the market continues to trade in a tight range near all-time highs. Sectors are taking turns being leader.
Yesterday saw strength in energy shares, as companies make deals for acreage in prime shale areas. At the same time there was weakness in financials, as Deutsche Bank (DB) reached a $7.2bln settlement with the U.S. Justice Department and squaring of positions ahead of Goldman Sachs' (GS) earnings report.
The iShares Russell 2000 (IWM) declined 1.3%. Despite the decline, IWM remains 3.6% above its level from 40 trading days ago. Here's a chart of IWM:
I queried my database to find out how IWM has fared historically when it declines at least 1% on the day while being up at least 2% on a trailing 40-day basis.
Here's a table showing how IWM has fared following prior instances of this setup since 2013:
These are pretty strong results. Historically, IWM has tended to rally from this setup. I expect the December lows near $130 to provide support and suggest selling the IWM Feb. 17 $130 puts.