Chart of the Week: IWM
We are going to talk about Russell 2000 IWM proxy today and see how bad this chart is looking here.
The chart is sporting a bearish pattern
As you can see here, I’ve traced out a pretty obvious looking pattern, which is called a head and shoulders, which is a bearish pattern. When you see a high that is made here on the chart, then a higher high from that, then a lower high, and then a breakdown through what’s called this neckline here. Once we broke this neckline around three weeks ago, it was all bad news for the Russell 2000.
One of the support lines over here goes all the way back to May, which comes in at about $169-170. If we break that level here today or possibly in the next couple of days, there’s going to be some more downside for the Russell 2000. Maybe it’ll bounce a little bit, like we did here and like we did here. But make no mistake, the chart is very bearish right now.
What we’ve always noticed in the past is that the Russell 2000 usually leads the rest of the markets. If this market is going down, it’s going the lead the Nasdaq, S&P 500, and Dow Industrials to go down, too.
The indicators are negative, too
Let’s look at the indicators. We can see the MACD started rolling over here once we created that head over here (on the head and shoulders pattern) back in the early part of August. It started rolling over again here. It’s rolling over at a really low level here on the Russell 2000.
We also see lower highs, lowers lows on the Chaikin money flow. That’s negative, too.
The bottom pane is the TDI, or Trader’s Dynamic Index, which compares relative strength to where bollinger bands are at, that is also on the negative as well.
There’s more downside to go here, especially if we break below $169. Where can we target to? Probably the $155 level, which would be another 12% down from where we’re at right now. It’s pretty ugly right here for the Russell 2000, which is actually negative on the year 2023 – we’re at about minus 1%. The Dow Industrials also threatening to go negative, too.
Take care over here. Have some protection. Puts are always good on the Russell 2000. They’re very liquid.
If things aren’t going to shape up any better – here we are at the beginning of October – it’s going to be a huge leading indicator for the rest of the market. So that’s IWM.
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