As Gold and Small-Caps Struggle, Here's What Traders Should Be Watching
Trying to anticipate a breakout or breakdown in IWM has not worked well this year.
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The summer start has been a slow one. Small-caps have struggled the first two trading days of June, with the iShares Russell 2000 ETF IWM capped at around $210. Should IWM close above $210, we could see a burst to the upside as momentum traders pile in. Unfortunately, a close under $200 may send us $10 in the wrong direction.
With Tuesday’s close of $201.97, we are much closer to that $200 level than $210, but trying to anticipate a breakout or breakdown in IWM has not worked well this year. Confirmation has been the key to trading it successfully.
With the recent surge in bond prices, some weakness has crept into precious metals. I liked gold as we started the year. Like IWM, the SPDR Gold Shares GLD have their own double top acting as resistance.
The level bulls need to take out is $226. The biggest problem isn’t that we are $11 off that level but rather the bearish head-and-shoulders pattern that has taken form over the past month.
The key level to watch is $214. We touched it Tuesday but managed a small rally off the lows. A single close below $214 may not open the floodgates, but if we fail to catch a bid on day 2, this pattern targets a drop to $202. Given traders' fondness for big, round numbers, odds favor that the target would be $200.
Although GLD hasn’t broken down yet, Tuesday saw major explorations fall below support. Newmont NEM, Agnico Eagle Mines AEM, Barrick Gold GOLD, and Wheaton Precious Metals WPM all broke lower below support. AEM and GOLD fell more than 5% on the day, while NEM was the strongest, down only 3.25%.
The largest 35 names in the gold sector, as measured by market cap, were all in the red Tuesday. Silver was also red across the board and looks to have broken support. I’m not ready to write off metals long-term, but caution is required right now.
At the time of publication, Byrne was long NEM.
