One of the inquires that I received today was on the TWM trade posted yesterday. I didn’t even realize until I read that email after the close today that the trade fell below the suggested stop that I posted as the Russell 2000 was only up modestly today. I may have rushed that post out and in hindsight, I should have mentioned a couple other things on the trade.
First of all, as I’ve posted quite a bit lately, the Russell 2000 is struggling with MAJOR multi-year, all-time high resistance (price moves of less than a percent or so over the previous high does not constitute a breakout IMO). Add to that the fact the small caps are also backtesting the recently broken uptrend line and substantial negative divergences persist on both the daily and weekly time frames. What I should have mentioned yesterday, and my apologies for not, is that TWM or an IWM short can be entered in one of two ways here: 1) As a quick, short-term overbought pullback trade targeting a back fill of the recent gap (as mentioned yesterday) or 2) As an entry into what could prove to be a much longer-term and more profitable swing trade assuming that the Russell 2k fails to break out to new highs here (or fails shortly after doing so).
The latter trade would obviously require a larger stop… say 5% to as much as 10% above current levels (depending on your target). Regarding the shorter term, gap back-fill trade, I should have suggest a stop just slightly below the recent lows in TWM as a second, more liberal stop which would still have offered a decent R/R. Either way, I would imagine that since TWM only slightly exceeded the suggested stop today that some who took the trade are still in it and if so, hopefully this information helps. Below are the updated TWM 15 min, IWM daily & $RUT weekly charts.
