Book Profits on Small-Caps as Russell 2000 Nears All-Time High Ahead of FOMC

NEW YORK (TheStreet) -- The iShares Russell 2000 ETF (IWM) represents the Russell 2000 and has a positive weekly chart. Here's what to look for as investors await the Federal Reserve's Open Market Committee Policy Statement Wednesday afternoon and the press conference by Fed Chief Janet Yellen that follows.

Of interest at the press conference is whether or not Janet Yellen comments on equity valuations. Keep in mind that in early May the Fed Chief made remarks that equity-market valuations were generally quite high. If investors agree that there are "potential dangers," it's time to book profits in small-cap stocks, as the Russell 2000 exchange-traded fund has a price-to-earnings ratio of 18.96.

The consensus about the FOMC meeting is that the Federal Reserve will hint that the first hike in the federal funds rate will follow the Sept. 16 to 17 FOMC meeting. The Committee will also likely suggest that additional hikes will be data-dependent.

Given elevated valuations and potential higher interest rates, Investors should reduce allocations to small-cap stocks by at least 50%. If exposure is desired, trade the iShares Russell 2000 ETF. Here's how.

Here's the daily chart for the Russell 2000 exchange-traded fund.


Courtesy of MetaStock Xenith

The Russell 2000 ETF had a close of $126.42 on Tuesday, just below its all-time high of $127.13, set on April 15. Notice how this ETF had been trading back and forth around its 200-day simple moving average between April 14, 2014, and Dec. 16, 2014, and has been above this moving average since 2015. The 200-day was tested as technical support three times between Jan. 6 and Feb. 2.

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