IWM: Cracking The Trend

By - May 01, 2015, 5:30 AM CDT

Monthly time frame:

Since the 2009 IWM (Russell 2000 etf) has been rising within the boundaries of a rising channel
The advance from the October 2014 has stalled and been rejected for the second consecutive month at the upper Bollinger band (We have two potential reversal candlesticks: On March a Spinning Top and this month a Shooting Star
IWM is testing the last breakout area
Often when price is rejected at the upper Bollinger band odds favour a mean reversion towards the 20 wma (dotted red trend line)
Obviously it is too soon to speculate on the end of the rally from the 2009 low but the risk of a phase of weakness is increasing specifically if next month IWM loses the horizontal support located in the area of 120.60

Monthly oscillators are poised for further weakness: MACD has not cancelled the bearish signal cross triggered on July 2014, the RSI is displaying a massive negative divergence. If the trend line in force since September 2014 is breached it would confirm a larger pullback. Stochastic has not rolled over yet but it is overbought and it is also displaying a negative divergence

So far we have a massive Engulfing candlestick
The trend line from the October low has been breached
After a large wide range body often the following candlestick is a small range one (Oversold bounce), so today we have to see if the support at 120.60 holds and IWM is able to reclaim the 20 wma. If it is breached the next support is located at 119.80

Weekly oscillators are approaching the line in the sand: Potential MACD signal cross and the RSI approaching the 50 line

IWM has broken down from a Rising Wedge
For the short-term it seems unlikely that bulls will be able to fix the unforeseeable consequences of the bearish pattern.
Probably IWM will bounce but odds favor the beginning of a sequence of lower highs/lows
If / Once the pivot support at 120.60 is breached the 200 dma will most likely come into play. If it does not hold odds should favor a new Bearish cycle

Judging by the violation of the lower Bollinger Band (It can be considered an extreme) odds should favor a bounce. We shall see if it is just one day wonder or a multi-day rebound but eventually it should fail below the resistance zone highlighted in green