IWM Losing Streak Hints at Short-Term Market Weakness

The iShares Russell 2000 ETF (IWM) is in the middle of its longest losing streak since September 2015

Mar 10, 2017 at 2:31 PM
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Small-cap stocks have underperformed their larger-cap counterparts recently, with the Russell 2000 Index (RUT) staring at a 2% month-to-date deficit, compared to modest gains for the Dow, S&P 500 Index (SPX), and Nasdaq Composite (COMP). What's more, the iShares Russell 2000 ETF (IWM) just logged its sixth straight daily loss, which, unlike the projection for gold prices, could translate into near-term market weakness, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. In fact, the exchange-traded fund (ETF) is trading near breakeven today-- meaning a seventh consecutive decline could be in the cards.

Diving deeper, there have been 19 other times when the IWM has posted a losing streak of at least six sessions since the ETF began trading in 2000. Prior to the most recent string of down days, IWM closed lower for eight consecutive sessions in September 2015. The longest streak was 10 days in September 2001, which culminated in an 11.1% loss for the shares.

IWM small cap losing streaks since 2000

Meanwhile, looking at the post-signal versus anytime returns shows the ETF tends to struggle over the near term following a losing streak of at least six trading sessions. Specifically, in the week after the losing streak ends, IWM has averaged a loss of 1.3% and is positive less than half the time, compared to an average anytime gain of 0.2%, with a nearly 56% positive rate. These weaker-than-usual returns are echoed in the two-week time frame, though iShares Russell 2000 ETF (IWM) shares typically begin to outperform at the one-month marker. Additionally, this signal could suggest a slight increase in volatility in the ensuing weeks, given the post-signal standard deviation.

Returns for IWM shares after losing streak

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