IJR Could Be Equity Market's Canary In A Coal Mine (Technical Analysis)

seekingalpha06-12

Daniel GrizeljIf only the scale in the picture accompanying this article were balanced for small cap stocks versus their large cap peers! They are not. The scales have been tipped in favor of the very...

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The scales have been tipped in favor of the very...</p>\n\n<a href=\"https://seekingalpha.com/article/4698738-ijr-etf-signs-of-weakness-further-downside-risk-likely\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>IJR Could Be Equity Market's Canary In A Coal Mine (Technical Analysis)</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nIJR Could Be Equity Market's Canary In A Coal Mine (Technical Analysis)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-12 09:08 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4698738-ijr-etf-signs-of-weakness-further-downside-risk-likely><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Daniel GrizeljIf only the scale in the picture accompanying this article were balanced for small cap stocks versus their large cap peers! They are not. The scales have been tipped in favor of the very...</p>\n\n<a href=\"https://seekingalpha.com/article/4698738-ijr-etf-signs-of-weakness-further-downside-risk-likely\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"IE00BFSS8Q28.SGD","symbol_name":"Janus Henderson Balanced A Inc SGD-H","start_time":0,"source_url":"https://seekingalpha.com/article/4698738-ijr-etf-signs-of-weakness-further-downside-risk-likely","article_id":"2442351435","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1310052459/image_1310052459.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2442351435","pubTimestamp":1718154517,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Daniel GrizeljIf only the scale in the picture accompanying this article were balanced for small cap stocks versus their large cap peers!) is. I never assume that any position I take is going to be \"right\" and is part of a bigger puzzle that is a total portfolio that functions like a team for me. But I continue to see signs, technically and otherwise, that small cap stocks are more likely to continue to bring up the rear of the stock market. 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They are not. The scales have been tipped in favor of the very largest companies, which continue to get larger. This has created what is bordering on a generational issue for small cap stocks, which were once the apple of investors' eyes. Now, Apple Inc. (AAPL) is worth more than the entire small cap market combined...yes, I said combined...small caps have become an unnecessary evil for some investors. It appears to me that small cap stocks, at least at the index and ETF level, are one of the most vulnerable parts of the stock market. I actually have a running text dialogue with an industry colleague, in which we remind each other of those days when the stock market does OK but small caps lag or drop severely. The message we exchange usually goes something like this: “and small caps still stink.” And, while every day there are analysts who can cite solid smaller stocks that have a strong chance to deliver alpha over the next few years, in the aggregate, that's a tall task for small companies. But since I am about trying to take any market development or trend and use it to my advantage, I have a modest but potentially growing position in both the ProShares Short Russell 2000 ETF (RWM) and the same ETF firm's 3X levered ProShares UltraPro Short Russell 2000 ETF (SRTY). RWM is more of a \"position\" in my all-ETF portfolio, and SRTY is owned in one of my other accounts that is more of a swing-trade mandate, and thus just worth a quick mention here, so readers know how I'm putting my money where my mouth (or keyboard?) is. I never assume that any position I take is going to be \"right\" and is part of a bigger puzzle that is a total portfolio that functions like a team for me. But I continue to see signs, technically and otherwise, that small cap stocks are more likely to continue to bring up the rear of the stock market. Small caps setting up a \"Jenga\" predicament for the broad stock market? More significantly, I see emerging signs that US small cap indexes may be doing what they have done many times in the past: lead the broader stock market down. Again, I don't predict outcomes and \"bet\" on them. I evaluate probabilities and allocate and rotate accordingly. In this case, the logic is as follows: 1. Small caps have lagged large caps for very understandable reasons. 2. iShares Core S&P Small-Cap ETF (NYSEARCA:IJR) is a small cap ETF that investors have increasingly looked at as \"the good one\" versus IWM, since IJR has a quality filter that IWM does not, and that helps exclude some really leveraged companies that might run into refinancing \"walls\" later this year and the next few years, as more and more low-cost debt comes due, and higher rates must be paid to keep them in business. It is estimated that about 4 out of 10 Russell 2000 members don't make a profit. This could be a \"saved by the Fed\" situation if rates come down quickly. Or, it could be a historic collapse, akin to when the game ends when we're playing the game \"Jenga.\" 3. While I'll detail what I see in the charts below, I want to emphasize that to me, charts tell the story the market wants to tell us. And most of the time, we should believe it. So in the case of small caps, there's a very good structural reason that they should be weaker hands for equity investors, now and into the future, albeit with brief periods where they rally furiously. Modern markets have a tendency to hyper-focus on the biggest, best-positioned stocks, regardless of what price (valuation) they have to pay.   Ycharts So with IJR selling at only 15x trailing earnings and a scant price to sales ratio of just under 1.0, I'd expect to be buying up an ETF like this one with both hands. But market realities are different now, and the charts show me the high risk environment that continues for this once-glamorous asset class. In fact, the Russell 1000 Index now accounts for 93% of the US stock market by size. So small caps only take up 7%, less for IJR when we consider that it owns fewer than 1/3 of the stocks IWM does. This is part of recipe for small caps in general being ignored. But I think heavily-dedicated small cap fans would settle for \"ignored\" versus what looks quite possible in the charts. IJR technical charts: even \"the good one\" looks vulnerable Here's the daily chart for IJR. What do I see that concerns me? Let me count the ways! 1. failure to break out above the $112 level, multiple times 2. 20-day moving average rolling over, now facing downward 3. PPO (my favorite momentum indicator to stay out of big trouble in my portfolio work), just crossed into negative territory. 4. Too much downside risk to ignore. This is clearer on the weekly chart I review below, but here, even a move that reverses the November-December 2023 rally is more than 15% lower from here.   TC2000 Now, here's the weekly chart. To me, this is at least as risky as the daily, but with potential for more ugliness if that first level noted above ($88-90 area) is broken. Because the next major stop lower could be $65. That's 40% below where IJR is now. The flip side is for me to determine where the price upside is. I can't see much at this point beyond the recent high, which is 15% up from here. But the way IJR and IWM have traded the past few years, that would not likely occur in a flash, so there would be plenty of time to re-adjust my position.   TC2000 Remember when I said that the small cap rally was November-December of 2023? The large caps, as shown here, continued to rally during 2024, but IJR stagnated, and it is now down year to date. And if we glance back at the weekly technical chart above, we can see that IJR has been rangebound since the start of 2021. That's more than just the look of a laggard. That looks to me like a lot of potential investors in small cap gave up and decided that mega cap stocks are the place to be. Data by YChartsHoldings analysis Here's a comparison of the top holdings of IJR and IWM. Concentration or weakness in a few giant holdings is not the problem here at all. Both ETFs are so widely diversified, a single stock is unlikely to move the needle much.   etf.comPerformance attribution observations That point is clearer when we look at the gigantic relative impact on IWM by Super Micro Computer, Inc. (SMCI), which rose more than 200% the past 12 months. That brought it up to 1.5% of IWM's assets, but it accounted for less than 10% of that ETF's total gain over that time. Now, SMCI is headed to the Russell 1000 and out of the Russell 2000, the index tracked by IWM.   Ycharts SMCI had even less of an impact on IJR during this time. Both ETFs benefitted from the remarkable re-emergence of a legacy traditional retail, Abercrombie & Fitch (ANF) which gained 440% over the past 12 months. But again, not enough to impact IJR by much (only 0.64% alpha added to the ETF's return, as shown below).   Ycharts Much is made of the weakness of IWM being about its large exposure to weak small cap financials, particularly regional banks. But IJR has even more financial sector exposure.   etf.com What could spoil my party here? There's always risk in investing, especially when trying to profit on what is essentially the \"short side\" by owning or trading inverse ETFs. I am well aware of how the math can work against investors, especially in the leveraged ETFs, but I account for that by taking smaller position sizes, no different from what many long-short hedge fund managers do. Perhaps the market will warm up to the fundamental cheapness of small caps. But that assumes they can deliver on sales and earnings, and that will likely take a strong US economy, as small caps tend to be more domestically-focused versus giant global industrial companies. And, my charts could fail me. It happens all the time, especially over shorter time frames. This market is like a cat with 99 lives, not 9. Buy the dip in small cap is not nearly as intense as with larger stock indexes, but it is still there. Conclusion: I favor attacking the small cap bear that may be setting up Attacking the bear means shifting from \"avoid this\" to \"try to profit from this going lower in price.\" This is just one piece of a more complex portfolio puzzle, which I call \"playing offense and defense at the same time.\"  I'll take it step by step, and I move incrementally in everything I do. As I like to remind myself, \"no big moves Rob, no big moves!\" So, my inverse holdings are predicated on the idea that this total picture puts the odds in my favor to profit from this hint of a small cap breakdown getting worse. That makes the profit potential from attacking this bear more enticing.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.28.1","shortVersion":"4.28.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2442351435"}