Is The Mega-Cap Run Over? Mid-Cap Stocks Look To Extend Gains And Stock Market Cycles

Zinger Key Points
  • IWM was forming an inside bar pattern on Thursday, consolidating on lower-than-average volume.
  • The ETF has increased more than large-cap indices so far this month, suggesting investors could be cycling their money.

The Russell 2000, tracked by iShares Russell 2000 ETF IWM, was consolidating on Thursday after rising 1.59% on Wednesday amid a strong month, which has seen the index spike more than large-cap indices.

Investors may be beginning to move money from mega-caps down to mid-tier stocks, following a big earnings season bull run in stocks like Apple and Nvidia. Historically, the move from mega-cap down through to small-caps is a common cycle in the stock market.

The consolidation was taking place in the form of an inside bar pattern on the daily chart. An inside bar pattern indicates a period of consolidation and is usually followed by a continuation move in the direction of the current trend.

An inside bar pattern has more validity on larger time frames (four-hour charts or larger). The pattern has a minimum of two candlesticks and consists of a mother bar (the first candlestick in the pattern) followed by one or more subsequent candles. The subsequent candle(s) must be completely inside the range of the mother bar, and each is called an "inside bar."

A double, or triple inside bar can be more powerful than a single inside bar. After the break of an inside bar pattern, traders want to watch for high volume for confirmation the pattern was recognized.

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The IWM Chart: WIM reversed into a fairly consistent uptrend on May 4, and has since made a series of higher highs and higher lows. The most recent higher high was formed on May 23 at $180.53, when the ETF rejected the 200-day simple moving average (SMA) and the most recent higher low was formed at the $172.36 mark on May 31.

  • The inside bar pattern IWM was working to print on Thursday leans bullish because the ETF was trading higher before forming it. Traders can watch for the ETF to break up or down from Wednesday’s mother bar on higher-than-average volume to indicate future direction.
  • After rejecting the 200-day SMA on May 23, the ETF consolidated lower before breaking up above and regaining the area on June 2. If IWN can remain above the 200-day for a period of time, the 50-day SMA will eventually cross above the 200-day SMA, which will cause a golden cross to form.
  • If IWM breaks down from the mother bar, bullish traders will want to see the ETF reverse upwards from the eight-day exponential moving average, which is currently trending at about $182. If the ETF falls under that indicator, IWM could back-test the 200-day SMA as support.
  • IWM has resistance above at $194.55 and $201.53 and support below at $185.44 and $178.15.

Photo: Shutterstock

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