{"id":16890,"date":"2020-12-18T07:30:43","date_gmt":"2020-12-18T12:30:43","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=16890"},"modified":"2020-12-18T07:30:43","modified_gmt":"2020-12-18T12:30:43","slug":"the-rubber-band-is-set-to-snap","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/the-rubber-band-is-set-to-snap\/","title":{"rendered":"The \u201cRubber Band\u201d Is Set To Snap"},"content":{"rendered":"

The small-cap rally is getting quite stretched. And, the rubber band could snap back any day.<\/p>\n

The Russell 2000 small-cap index is up more than 20% in the past seven weeks. That’s a remarkable move, and it has lots of folks looking for even more gains as we close out 2020 and ring in 2021.<\/p>\n

But, I’m not so sure…<\/p>\n

Take a look at this chart of the iShares Russell 2000 ETF (IWM)…<\/p>\n

\"\"<\/p>\n

At first glance, this chart looks bullish<\/a>. IWM is in a steady uptrend. All of the various moving averages are in a bullish configuration – with the 9-day exponential moving average<\/a> (EMA – red line) above the 20-day EMA (green line), and the 20-day EMA above the 50-day moving average<\/a> (MA – blue line).<\/p>\n\n\n\n
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Free Trading Resources<\/strong><\/p>\n

Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

There’s no wonder why so many folks are looking for even greater gains in the days\/weeks ahead.<\/p>\n

But, look at how stretched all the moving averages are from each other. There’s not much energy left to fuel another big push higher.<\/p>\n

More importantly, IWM traded yesterday nearly 13% above its 50-day MA line. That’s an extreme move. IWM rarely gets more than 7% away from its 50-day MA before snapping back towards the line.<\/p>\n

The last time we saw such a big gap between the price of IWM and its 50-day MA was in early June – just prior to a 10% drop in the small-cap index. The chart today looks quite similar to how it looked back then.<\/p>\n

Of course, that doesn’t mean IWM has to fall from here. It could just chop around near its current level for a few weeks and give the moving averages a chance to catch up to the current price. That’s probably the most bullish scenario.<\/p>\n

It seems unlikely that IWM would rally strongly from here given its already extended condition. And, even a modest decline back to its 50-day MA would knock it down by 10%.<\/p>\n

From a risk\/reward perspective, the small-cap sector looks like a poor idea at the moment.<\/p>\n

Best regards and good trading,<\/p>\n

<\/p>\n

Jeff Clark<\/p>\n

P.S. <\/strong>During my three-decade-long trading career, I rarely trade the big-name stocks. Instead, I trade this “boring” stock<\/a> that I know will almost always give me significant returns.<\/p>\n

If you want to keep it simple, and only trade one stock, then click here to find out how<\/a> it could potentially generate consistent gains… and could even fund your retirement, like it did for me.<\/p>\n

Reader Mailbag<\/strong><\/h2>\n

In today’s mailbag, Jeff Clark Trader<\/em> member James agrees with Jeff’s Monday essay<\/a> on making contrarian trading choices…<\/p>\n

\n

Jeff, this is excellent advice that needs to be constantly pounded into my dense head. How many times have I let my emotions make the decisions for me and suffered losses?<\/p>\n

It’s counter-intuitive to buy more of something when the price drops lower, even though you know you are being presented with an opportunity to buy at a discounted price.<\/p>\n

Your newsletter is one of the best investments I’ve made this year. Keep them coming.<\/p>\n

– James<\/strong><\/p>\n<\/blockquote>\n

Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming \u2013 and send us any questions \u2013 at feedback@jeffclarktrader.com<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

I\u2019m doubtful about this move…<\/p>\n","protected":false},"author":25,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[10],"person":[7],"newsletter-type":[],"ticker":[],"class_list":["post-16890","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-jeff-clark"],"acf":[],"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/16890","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/25"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=16890"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/16890\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=16890"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=16890"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=16890"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=16890"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=16890"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=16890"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=16890"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}