Interested in Small-Cap Stocks? Here's How to Play the Russell 2000 ETF Now

After bullish Consumer Price Index (CPI) and Producer Price Index (PPI) readings, Thursday's economic data were not as kind as the previous days. Weekly claims, industrial production, capacity utilization, and the NAHB Housing Market Index were disappointing. These aren't on the same level as the CPI or the PPI, but seeing the housing data weak after stronger-than-expected mortgage applications a day earlier does take the shine off the sector for now.

If you jumped into the SPDRs Select Sector Financial ETF XLF on Tuesday's gap above $34, we are inching closer to that $35 sell target. Thursday, the ETF reached $34.88. Selling some here, setting a stop at your entry, and seeing how far this can run is the play.

The iShares Russell 2000 Index Fund ETF IWM action reminds me of the trading days following a policy decision from the Federal Open Market Committee (FOMC). We saw a big move in one direction, completely reversed in only a few days.

IWM finds itself just above the CPI gap up open from earlier this week. We hit resistance on Wednesday, and I would keep that level on your radar. It was the point where the wheels fell off the bus back in September.

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Now, we have a better development to consider on the trading side. A move lower into the box should result in a test of $170. That would fill the gap.

Should that level fail to hold, additional support is just a few dollars lower. If you are a buy-the-dip trader, then taking a shot at buying a bounce-off $170 with a stop just under $167 might not be a bad risk for the potential reward. The upside could extend as high as $180.

If you prefer to buy breakouts, you'll likely want to see a close above $180 before getting involved. That opens the door to $190, as we need to look back to the summer to find any significant volume above $180.

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