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Oversold List Shows Market at Tipping Point

IWM Chart IWM data by YCharts

Another way to view the small cap horizon is to look at the Russell 2000 ETF and see how it compares to the TZA. iShares Russell 2000 Index IWM (IWM) is the trading ETF to look at. Unlike the leveraged ETFs, the straight "normal" ETFs are in my opinion, perfectly fine to use as part of a portfolio. I especially think they are wonderful when used as a diversification tool.

The weekly chart isn't what I would consider overextended. Not enough to pull the trigger to short it (the same as buying a bear ETF). On the other hand, the daily chart is indicating to me that a pullback in price is now expected.

SPY Chart SPY data by YCharts

For one more reference point, take a look at the SPDR S&P 500 SPY (SPY)

Standard and Poor's Depository Receipts trust is involved in the financial services industry. Their holdings are comprised of the 500 stocks in the S&P 500 Index. SPDR S&P 500 ETF trades an average of 126 million shares per day with a marketcap of $111 billion. It's 52-week trading range is $107.43 to $148.11.

Once again, the weekly chart appears ready to take a pause, and the daily is peering over the cliff looking down at support near $145.50 (or lower). The various index charts and the recently announced Fed's QE3 presents a unique challenge to reconcile the catalysts for market direction.

The answer is gaining clarity, even with Bernanke refilling the punch bowl, the economy has become like other addicts wanting a fix; a tolerance is building. Physiologically this is the third shot and more money doesn't fix a problem that doesn't lack liquidity.

I am not shorting the SPY yet, because I think there is a stock that offers a better risk vs. reward.

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SYM TRADE IT LAST %CHG
FAZ $12.08 0.00%
IWM $125.86 0.00%
SDS $20.28 0.00%
SPY $211.65 0.00%
TZA $9.69 0.00%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

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