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IWM Bear Flags Ripe for Breakdown

The bear flag formation highlighted early today on IWM (Russell 2000 Small Cap ETF)  in the trading room looks ripe for a breakdown. So far, this continuation pattern has formed as expected, with an impulsive move down on above average volume to form the "flagpole" followed by a low-volume consolidation as prices moved slightly higher in a well-defined "flag" pattern. All we need now is the catalyst for the next leg down which would be a downside break of the pattern, preferably on above average volume.

IWM 10-minute March 8

IWM 10-minute March 8th

Although the small caps are my preferred broad market index to short at this time for the reasoning highlighted in today's video, I'll always keep a close eye on the major large caps indices (SPY, QQQ, etc..) to confirm or refute a breakdown in the small caps. With just over an hour left in the trading session, even if IWM breaks down from this pattern soon, there's a good chance that the bulk of the downside follow-thru will take place tomorrow, quite likely on an opening gap down.

IWM is not an official trade idea at this time although active traders might opt to position short the small caps on a break below this pattern. TWM is the 2x short small cap, TZA is the 3x short & my preference yesterday was to short TNA, the 3x long small cap ETF, as I'm very open to the possibility that this trade could morph into a multi-week or even multi-month swing trade. If so, the decay from the 3x leverage should work in my favor.

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Mar 8, 2016 2:52pm|Categories: Equity Market Analysis|Tags: , |3 Comments

3 Comments

  1. Lisa Trading March 8, 2016 3:26 pm at 3:26 pm

    Too bad cannot short in my IRA account. Will take a position in TWM or TZA.

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  2. rsotc March 8, 2016 3:33 pm at 3:33 pm

    Lisa- I posted some near-term targets on that 10-minute chart of IWM but looking at the 60-minute time frame, I favor a move down to the 102.70ish level before any significant bounce in IWM. Of course, that may or may not happen but if so & you’re using TZA, that might be a good place to book profits & recycle back in on a bounce. Tough to say at this point if or how much IWM will bounce off the 102.70ish target/support level, assuming it gets there but as I’m in this one, I’ll post updates on any significant developments that I see. IWM just took out this morning’s lows… a good sign for the short trade & even better if SPY & QQQ do the same in the next 30 minutes. G-luck!

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    • Lisa Trading March 8, 2016 4:02 pm at 4:02 pm

      Thanks Randy! I will be closely watching the 102.70ish level. FYI, I just bought TWM instead of TZA. 🙂

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