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IWM Bullish Pennant + Uptrend Line Formation

I try to avoid contradictory analysis with the old "the market might go up if... or the market might go down if ...." but I'd be remiss not to point out both of these technical levels to watch on this IWM 60-minute chart. We have both a pretty well-defined & fully mature bull pennant pattern in place as well as a pretty extended uptrend line. Pennants are continuation patterns just like their closely related cousin, the bull (or bear) flag pattern, meaning that they typically form in around the middle of a fairly powerful, mostly uni-directional trend. The sharp move leading up to the pennant consolidation pattern is known as the flagpole & just as with a bull flag pattern, to calculate the expected price target for these patterns you simply add the distance of the flagpole to the lowest point of the pennant at the last price tag just before prices break out. More often than not, the move following the breakout of a pennant pattern is just a sharp as the move leading up to the pattern.

IWM 60-minute July 15th

IWM 60-minute July 15th

Of course, as with any pattern in technical analysis, it is just a setup until a buy signal is triggered on a breakout, in this case above the top of the pennant and as with all bullish breakouts, ideally on an expansion in volume, ideally 1.5x or better the average volume.

On the flip side, IWM is also just rolling over from overbought reading on the 60-minute time frame after a fairly extended run & with the recent bearish rising wedge breakdowns on the SPY & QQQ, IWM could very well trigger a sell signal by breaking down below this yellow uptrend line (probably next week), especially if both the MACD signal line & the 13/33 ema histogram (60-minute chart) both trigger sell signals with crosses below the zero line.

As always, I've give you my opinion FWIW & that would be that I favor the latter (bearish TL break) over the former but have to say that my confidence isn't high enough to add any new short exposure here in advance of a breakdown. Rather I would prefer to see how the IWM as well as the SPY, QQQ and rest of the broad market trades heading into next week.

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Jul 15, 2016 2:15pm|Categories: Equity Market Analysis|Tags: , |3 Comments

3 Comments

  1. pangblood July 15, 2016 2:40 pm at 2:40 pm

    dayum, that would be a very impressive rally, thanks for the heads up

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  2. Teeps01 July 15, 2016 3:29 pm at 3:29 pm

    Another observer backing up the potential downside move here via RUT. What struck me were not so much the tags around the 1210 level but the divergences.

    https://twitter.com/sjd10304/status/754011036450029569

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  3. joefriday July 15, 2016 8:35 pm at 8:35 pm

    Thanks Randy… good to cover both sides… imho..it’s gonna break down..for the reasons you mentioned, as well the fact of all the dark pool block trade prints that have come across to day for IWM… same thing for SPY as I noted above..and also the QQQ’s..

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