Green Light For Small Caps Short Setups.

As a reminder, the IWM correlation score with IBD’s Accumulation/Distribution ratings issued a sell warning signal on January 31st when it crossed below its 20 dma. The risk-reward recommendation was to turn into cash and start looking for optimal shorting setups. After a one-day whipsaw on February 1st, the score spent the remainder of February relatively flat below the 20 dma, confirming the exhaustion of intermediate term institutional accumulation momentum. On Tuesday 02/19, it bounced back just one hair below the average and yesterday was therefore a key day for determining the institutional resolution to follow through in any direction. Clearly, the Fed minutes on top of the bad housing numbers provided the required excuses to rush to the exits exacerbating a cascade of stop-losses hits in the late afternoon. There was no sign of opportunistic institutional buying into the weakness confirming that a new cycle of distribution has just begun. Several Fed governors are scheduled to speak today besides a large POMO buy operation which should create some intraday strength. Due to the kicking down thrust seen in the indicator yesterday, the potential bounce could provide the last optimal risk-reward sell and shorting opportunity right at the start of a new distribution cycle. The risk will be confined by a close of the score indicator above its 20 dma. I will of course post when it happens.
Billy

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Thanks Billy! Take care.

Martin