Bearish Opportunity in the Russell 2000 (IWM)

If the resistance level in this bounce holds, bears could benefit

   

iwm daily chart 300x222 Bearish Opportunity in the Russell 2000 (IWM)
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After a final rally higher off the April lows, the iShares Russell 2000 Index Fund (IWM) put in its year to date high on May 22, along with the S&P 500. Over the next few weeks of trading two things changed notably: 1) intraday volatility in equities spiked higher, indicating increasing nervousness on part of at least some market participants; and 2) bond yields shot higher.

As medium term tops are rarely defined by a single day, on June 18 the index re-tested the May highs, which ultimately served as a double top.  The ensuing four day and roughly 5.65% sell-off brought the index right into this first important support zone near $94.20, which, not so coincidentally, is also a confluence zone made up of the 100 day simple moving average and the November 2012 up-trend line.   For your information, the S&P 500 has already broken this up-trend line, so if and when the Russell 2000 were to snap it too, things could turn decidedly more bearish in a hurry for the broader market.

iwm close up 300x296 Bearish Opportunity in the Russell 2000 (IWM)
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Much closer up on the daily chart of the IWM, Monday’s indecision (doji) candle is better visible.  The ensuing oversold bounce has thus far lasted about 2.40% and brought the index right into the important 50% retracement of the entire sell-off.  From here, bears are starting to again receive better odds on the short side, up to the $97.50 level, which corresponds to the 61.80% Fibonacci retracement level of the sell-off.  Any push above there and the bulls might just be able to run with it again.

If the area between $96.80 and $97.50 does indeed manage to hold as resistance, a next downside target for the bears to consider sits around the $92.40 mark.

Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.


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