Russell 2000 (IWM) and Semiconductors (SMH): Concerning Price Pattern?

After an epic week where only a few sectors plus the S&P 500 and NASDAQ shone, it turns out that it’s the calendar price range that has the final say (read last week’s articles here). 

At least for now.

This week we watched space exploration stocks, semiconductor companies, quantum computing and AI, plus crypto related companies all lead the way to new all-time highs.

QuantumScape (QS) Nvidia (NVDA) Robinhood (HOOD) Caterpillar (CAT) Broadcom, Microsoft and GE Aerospace are just a few that roared.

Retail investors continue to pile into momentum stocks. And of course, crypto.

One sector to watch right now is the Semiconductors (NASDAQ: SMH). 

A few points to consider:

1. In late January 2025, the Semiconductors Sector ETT (SMH) rallied above the January 6-month calendar range and failed. (first circle on the left).
2. Momentum at the same time showed a bearish divergence (bottom circle on the left)
3. SMH remained under the January range until June when it cleared the 6-month range, marching to new all-time highs this past week. (second circle). Note the momentum at that time was also improving.
4. Currently, SMH tried to pierce the July calendar range early Friday and then sold off. (last circle on the right).
5. Momentum, while still strong, did not reach a new all-time high with price.

This could be just some end of week profit taking at the highs. Or it could be the start of something bigger in the way of a correction.

What we will watch for is either, a convincing gap higher above the new highs OR

The start of a correction, possibly down to the July low or 265, the June breakout area.

Now let’s turn our attention to the small cap stocks and the Russell 2000 ETF (NYSEARCA: IWM) share a few features but also have some distinctive ones all to themselves.

Looking at the Russell 2000 ETF (IWM), the similarity to SMH is that the ETF tried to clear the July 6-month calendar range but could not.

Back in January-February, IWM did successfully trade above the January 6-month calendar range. But not for long. 

The retail sector XRT weakened before IWM did and that was that for the rally.

So, we have one similarity to SMH but also vast differences.

1. While SMH finally cleared the January range in June, IWM was not even close (top arrow).
2. Momentum remained in a bearish divergence (bottom circle)
3. It was not until early July that IWM returned over the January 6-month calendar range low and then cleared the 200-DMA (green).
4. Look how close the July calendar range is to the January calendar range high. That’s huge.
5. Momentum now, while improved, has not cleared the Bollinger Band (dotted line).  

Why is this huge?

We now have a year of resistance at both calendar ranges. 

The longer the resistance, the more powerful it is once it clears.

Should IWM convincingly clear above 226-227, do not overthink. 

Regardless of what SMH does (and we suspect it will stay strong if IWM does), the analysts waiting for IWM to outperform could finally be here.

2 caveats though

1. XRT must rally as well.
2. IWM must hold above 215.

Twitter: @marketminute

The author may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not represent the views or opinions of any other person or entitiy.