Small Caps Face Support Test

ETF Outlook for the Week of July 14, 2014

Last week the S&P 500 suffered a minimal loss of 0.5 percent, however the market saw pockets of big selling.

The small-cap stocks fell approximately 4 percent as money came out of the higher beta stocks moved into either cash or sectors that are perceived as being less risky. Oil also continued its fall and has now lost ground in 10 out of the last 11 sessions. Gold on the other hand had a solid week and finished at its best closing price in months.

iShares MSCI Germany Index ETF (NYSE:EWG)

The country won its first World Cup since 1990 by beating Argentina by a score of 1-0. The country will now have to put its focus back on the economy after the big win. The ETF is poised to open higher this morning with most of the European ETFs after the weekend.

Nonetheless the manufacturing numbers out of Germany last week showed the biggest drop in two years and have now declined for three consecutive months. With the country's economy being the largest in Europe and fourth largest in the world, the numbers are critical to the recovery in the region.

SPDR Financial ETF (NYSE:XLF)

The ETF was able to close in positive territory last week after Wells Fargo (NYSE:WFC) kicked off earnings season for the banks.

On Monday morning Citigroup (NYSE:C) reported better bottom and top line numbers is poised to open the week with a higher bid. On Tuesday JPMorgan Chase (NYSE:JPM) is expected to report earnings of $1.29, down from $1.60 last year.

XLF is sitting above support at the $22.40 area and indications are it will open just below $23.00, a positive from the chart perspective.

iShares Russell 2000 Index ETF (NYSE:IWM)

The diversified small-cap ETF fell by 2.3 percent last week and is sitting just above its 50-day and 200-day moving averages. The pullback is significant because it took place in a short period of time and it was much deeper than its large-cap peers.

The next few days will be critical for the asset class. If IWM is to continue the current upward trend, it should hold the $113.00 area. If IWM can hold the support level and either start to rally or build a base it would be extremely bullish for the near-term action in the ETF.