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  1. Home
  2. / Investing
  3. / ETFs

This Small-Cap Proxy Looks Ready to Break Out, So Here Are 2 Ways to Play It

In case you hadn't noticed, the most popular small-cap ETF around seems to be regaining its footing and could put on a sprint soon.
By BOB BYRNE May 23, 2023 | 07:45 AM EDT
Stocks quotes in this article: IWM

You can take your debt ceiling worries and shove them.

That seems to be the message from the bulls. Politicians continue to fail to make headway toward a debt ceiling resolution. The week started in the same way it ended -- lots of posturing with very little progress.

Yet while deadhead politicians flounder and Fed heads keep talking about inflation and the potential need for higher rates down the line, small-cap and tech buyers were still pounding the buy button.

Chances are you're long tech by now, if anything. If not, then it may be too late to chase, but fortunately, there is another choice: small-caps.

It's hard to ignore the iShares Russell 2000 Index ETF (IWM) at this point. The small-cap proxy appears ready to break out higher and push for the $185 level. On Monday, the 10-day exponential moving average (EMA) broke above the 21-day EMA. The 5-day EMA has been trending up for a week now as well.

Traders could approach this ETF one of two ways regarding a trailing stop. First, conservative traders could use a close, or consecutive closes, below the 21-day EMA as a stop loss. That only provides a few percentage points leeway to the downside, but it would guard against a big drawdown in a hurry if the market reverses.

Unfortunately, using that approach may shake a trader out of the position too quickly. It's a tight stop. We could break that level with some minimal profit-taking. We could touch $175, then quickly reverse higher.

My preference would be to assume a smaller position and use the $172 low area from the past 12 trading sessions as a signal to exit. Each day the IWM moved higher above $179, I'd inch that stop higher by at least half the increase from the day.

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At the time of publication, Byrne had no positions in the stocks mentioned.

TAGS: ETFs | Index Funds | Investing | Small Cap | Real Money

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Jun 5, 2023 7:00 AM EDT

The technical signs are starting to point to a move higher for the iShares Russell 2000 ETF.

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Bob Byrne
Jun 2, 2023 8:30 AM EDT

Every time traders think they're about to kick the ball and send the iShares Russell 2000 ETF flying, Lucy pulls the ball away and they end up flat on their backs.

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