Small caps pressure big support

All eyes are on key support for the iShares Russell 2000 ETF (IWM) at 237.55-236.27, which is getting pounded on by the bears heading into the last hour of today's trading. The two weekly bearish engulfing patterns from October continue to weigh on small caps, keeping pressure on the recent uptrend.

If this key support for IWM breaks, the risk increases for a deeper pullback to 222, which aligns with the 38.2% retracement of the April-October rally at 221.81.

We view 237.55-236.27 as an important risk management support zone for IWM and small caps. If it holds, IWM would display a classic "bend-but-not-break" chart pattern, offering some much-needed respite for the bulls.

Chart 1: Russell 2000 (IWM): Weekly chart

Small cap breadth has weakened

Small cap breadth indicators have weakened, including the Russell 2000 advance-decline line and the Russell 2000 volume advance-decline line.

Chart 2: Russell 2000 (IWM) (top) and Russell 2000 advance-decline line (bottom)

Chart 3: Russell 2000 (IWM) (top) and Russell 2000 volume advance-decline line (bottom)

iShares Core S&P Small-Cap ETF (IJR) has some breathing room above big support

The iShares Core S&P Small-Cap ETF (IJR) also formed two weekly bearish engulfing patterns in October and could confirm another if it closes below last week’s open at 117.74 tomorrow. While that may sound ominous, unlike IWM, IJR still has some breathing room toward its major support zone at 114.15–113.89, defined by a key chart level and the rising 26-week moving average.

Chart 4: iShares Core S&P Small-Cap ETF