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Small-cap ETFs Lag in October, but Break out of Flag Patterns

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The EW S&P 500 ETF, S&P MidCap SPDR and S&P 500 SPDR moved to new highs this week, but the S&P SmallCap iShares and Russell 2000 iShares are lagging and remain below their early October highs, which were 52-week highs. The PerfChart below shows the performance for seven major index ETFs this month. SPY, MDY, QQQ and DIA are leading with gains exceeding 2%. IJR and IWM are lagging with gains around 1%. 


Even though IWM and IJR are lagging this month, I would not feel too bad for small-caps because they are still leading since mid August. The chart below shows both surging over 12% from mid August to early October and then correcting with falling flag patterns. These are bullish continuation patterns that typically form after a sharp advance. The downward drift represents a correction, which can be the pause that refreshes. It looks like these corrections ended on Friday as both ETFs broke above their flag lines with gaps. 

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--Arthur Hill CMT

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Arthur Hill
About the author: , CMT, is a Senior Technical Analyst at StockCharts.com. He has written articles for numerous financial publications including Barrons and Stocks & Commodities magazine. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed technician. In addition to his CMT designation, Arthur holds an MBA from the Cass Business School at City University in London. Learn More
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