Securities Research Services

Thursday, December 28, 2006

Small Caps Breaking Out or Breaking Down?

Small caps, represented by the IWM (Russell 2000 index), made their way back up to test major overhead resistance yesterday. The long term chart on this index is interesting. Either this group is getting ready to break out to all time highs and keep on going for some time to come, or it is topping here. Why do we say that? Volume has been huge since last spring.

Note the fact that the last time the IWM peaked its head above resistance spring of last year. The breakout failed big time and small caps went into a tail spin. Volume since that time has been overwhelming large so either smart money is accumulating small cap stocks for a big run or they are unloading their shares in expectation of an even bigger failure than last spring's failed breakout. The jury is still out for us.

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