Small caps began a nice run the last week of the year which continued until today. Is this pullback just the normal profit taking and short selling that comes with any double digit run? Or is it the beginning of the return to November lows. Let's look at the hourly graph:
The IWM is coming back from a six day run and is at the 38% Fibonacci retracement and close to the 50-hour MA. This looks healthy to me. We await the the nonfarm payrolls Friday after the lousy ADP employment report today and that seems like a reasonable bogeyman to blame for this pullback. But I would argue that if we had no bad ADP number, the pull back would have happened anyway and we would ahve blamed the Israeli's incursion or Russia cutting off the gas on Europe or Obama's haircut or something else. The news is secondary.
Disclosure: I have several small caps long and opened up a hedge with TWM (short IWM) Monday looking for this pulllback. I'm still think that Textbook January Effect with a positive month is in the offing, but be careful, if this breaks down past the 62% retrace-- $48 on IWM-- I'd be more concerned.