iShares Russel 2000 ETF analysis: March might bring higher prices

Vaccination is gaining momentum in the United States

The iShares Russel 200 ETF edged lower in the third week of February. The trend has been upward sloping and broke out to fresh highs in February. The upward movement has been driven by higher yields which are lifting many of the small regional banks in the Russell 2000. The positive news surrounding the rollout of the vaccine is also helping to buoy small-cap stocks which make up the majority of the business in the United States. 

The rollout of the vaccine is gaining steam

The small cap ETF has gained traction as the vaccine rollout has gained steam. There are currently now 40 million people, or 12 per cent of the US population, that have received at least one shot. Approximately 16 million people or 4.7 per cent of the US population have already received two shots. Approximately, 60 per cent of the US population or 190 million people will need to be vaccinated to have herd immunity and go back to a semi-normal way of life. So more than 1.5 million individuals in the United States need to be vaccinated per day for this to realistically occur. With new variants appearing, a booster vaccine will also likely be needed.

US yields are rising

Many of the small-cap companies in the Russell 2000 are financial concerns. This includes banks, brokerages and credit unions. Many of these companies generate revenues from loans. To successfully have a lending business, you need short-term interest rates to be lower than long-term interest rates. This will allow you to borrow short-term from other banks, and lend mortgages over longer periods locking in the difference in interest rates. This phenomenon is currently occurring helping to buoy banking profits and the smaller financial institutions in the Russell 2000.

Seasonality

The seasonals on the Russell 2000 show mixed performance during the past 10-years. Over that period, the IWM ETF has increased 70 per cent of the time with an average loss of 0.4 per cent. During the past five years the IWM has increased 60 per cent of the time, with an average loss of 2.4 per cent.

iShares Russel 2000 ETF technical analysis

The trend in the IWM is upward sloping, with support seen near the 10-week moving average at 260. Resistance is the all-time high near 230. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Prices are overbought as the fast stochastic is printing a reading of 95, above the overbought trigger level of 80. The relative strength index (RSI) has diverged. This means the IWM made a higher high in February but the RSI did not. This shows decelerating positive momentum. The current reading on the RSI is 74, above the overbought trigger level of 70 which also could foreshadow a correction. Medium-term momentum is positive and the moving average convergence divergence (MACD) histogram prints in positive territory with an upward sloping trajectory which points to higher prices.

iShares Russel 2000 ETF: how to trade?

IWM is trending higher but likely to consolidate during the balance of February into early March. Prices are overbought and the RSI is divergent. The seasonals are mixed in March. The vaccine rollout is giving investors hope and long term yields are rising providing better profits to the financials in the Russell 2000. Look for the IWM to consolidate and then accelerate higher in March.

Trade iShares Russell 2000 ETF - IWM shares price

iShares Russell 2000 ETF
Daily change
221.58
Low: 218.81
High: 224.59

FURTHER READING: ETFs, explained

FURTHER READING: ETF vs index fund: which is better?

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