Micro-caps Approach Important Support

So far in 2014, it's been the Large-Cap stocks that are getting all the glory. The S&P500 is up 7% YTD, the Nasdaq100 is up almost 13% and the Megacaps are up over 8%. But the little guys, particularly the Micro-caps have been struggling since earlier in the year. These companies are generally defined by a market capitalization of between $50 M - $300 M. This group peaked in March on both an absolute and relative basis, and so far the iShares Micro-cap ETF $IWC is down 6% for 2014.

What had me worried coming into the week was the fact that we are now approaching key support in the iShares Micro-cap ETF. Not only is this arguably the 4th test of this level, but on each rally off these lows, the sellers have shown up sooner and sooner. In other words, notice how each rally off support has ended with a lower high. This is not a good combination:

For now, we are still holding on to this key support. But all of the evidence suggests that a break is coming. The measured move upon this confirmed break would be approximately 12 points based on the size of this pattern. This would give us a target of just under 58. This area also represents the 61.8% Fibonacci retracement of the entire more from the lows in the Summer of 2012.

Here is a weekly chart to get a bigger picture view of these recent developments. Also notice that this critical support mentioned above in the daily chart also represents the uptrend line from the lows in 2009. A simultaneous break of both of those is what worries me the most:

We will continue to evaluate as time goes on. But I think this break is likely to happen soon and we will act accordingly upon confirmation. On a relative basis, this thing has been a disaster all year. Here are Micro-caps compared with Large-caps in a clean downtrend defined by lower highs and lower lows.

I see little reason to think this support in the high $60s will hold for $IWC. Stay tuned...

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