Rotation into small cap stocks is the most discussed stock market theme over the last week and rightly so. There's likely more upside ahead, according to the charts. The iShares Russell 2000 ETF just logged a five-day move greater than 10%, which last happened during the powerful snapback in April 2020 post the COVID crash.
With IWM already up 25% from the October 2023 low even before this last spike, it's clear this is a completely different trading environment compared to spring 2020. In fact, this big move has pulled IWM's 14-day relative strength index all the way above the 80 level. The indicator only has surpassed 80 three prior times since the internet bubble burst in 2000: September 2017, November 2016 and June 2003.
Additional upside followed each time. So, while the short-term pop has been nothing short of historic, seeing small caps continue to rally from last fall shouldn't be surprising. This is best viewed from via several longer-term charts.
Weekly breakout Here's the weekly chart that clearly depicts IWM breaking out from a two-and-a-half-year bullish inverse head-and-shoulders pattern. The sideways price action in 2024 ultimately formed the pattern's right shoulder, which IWM broke out from last week..
. and followed through upon the last few days. Should this breakout hold, the upside target would be near $260.
As is clear, that objective is considerably higher than the 2021 peak, which was the last time IWM made a new all-time high. What's next? The obvious .
