Yesterday in his weekly technical analysis note to Oppenheimer clients, my Options Action and Fast Money friend Carter Worth had a great write up on just how extended he thinks small cap stocks have become of late as measured by the Russell 2000 index. Carter was also on Fast Money with me last night describing his bearish positioning, but given the out-performance of the Russell to the SPX I favor an IWM short (I am short some as of yesterday’s close $103.40) and will look to an options trade into the end of Q3, most likely once tomorrow’s FOMC meeting is out of the way.
Full note below, but here are a few highlights from his note:
The Russell 2000, having broken out above its well-defined tops of 2007 and
2011 centering on the 850+/- level and now trading at 1050, has, by our
work, met a reasonable “price objective” for just such a breakout (+200
The Russell 2000, having reached the 1050+/- level, now is approaching its
“internal trendline” associated with its peaks in 2000 and 2007.
The degree to which the Russell 2000 has appreciated above its smoothing
mechanism (the 150-day moving average) is extreme, by our work. When it
has reached similar extremes in the past, returns have been asymmetrical
(read: there was little upside and plenty of downside).
Russell Hammond from ALMOST FAMOUS