IWM Downtrend Channel

The IWM is now in a bearish downtrend channel which is marked with red lines on this 60-minute chart (click to enlarge):

In the lower panel of the chart, I have added a slow-stochastic indicator. So, as you can see, IWM’s stochastic had been in oversold territory for three days and was due to unwind. The beginning of that process was signaled by the exhaustion-gap reversal pattern (blue box) on Tuesday morning.

And now, IWM’s stochastic is oversold. Will it be able to use that oversold condition to pop up and out of the channel? Or will it stay oversold for an extended period just like it stayed overbought on the way up?

A bearish attitude is appropriate until the gamblers come back to the small-cap casino, and the IWM busts out of this channel.

56 Responses to “IWM Downtrend Channel”

  1. 2thfixr says:

    Matt, couldn’t this down channel just be considered a bull flag since it is just overlapping? Like you pointed out, a break of the channel is bullish.

  2. George says:

    That’s some nice smoothing going on the stochastic.

  3. admin says:


    Good point. It could indeed be a bull flag on a wider time-scale – especially since volume declined during Wednesday’s selling, which is a classic sign of a flag. Volume declined for SPY, QQQQ, IWM, XLF, DIA, XME, and EEM. Only SMH had an increase amongst the major ETF’s that I track.


  4. Dressguard says:

    I don’t care. My main holding company declared they won’t change their dividend.

  5. George says:

    Dressguard, maintaining dividends is rare these days.

  6. Mitch says:

    Good morning!

  7. George says:

    SPY is still in its daily uptrend. It stalled at the 50% Fib retracement. Now to see where it goes from here. It would need to do some serious back-filling to reverse the current upward direction.


    I still have my eye on the Moon and Mars gaps.


  8. George says:

    Sup Mitch? What’s in your plan for today?

  9. Mitch says:

    Run; Hold; Unload at target, be it today or later. Re-up into something else or more of the same. Shortcuts can slow you down – JJ. :)

  10. admin says:

    The unemployment-claims report at 8:30am showed improvement, and IWM has moved up to the top of the trend channel shown on the chart above in pre-market trading.

  11. George says:

    True definition of “nimble” Mitch! 😀

    “Float like a butterfly, sting like a bee.” (Muhammad Ali)

  12. 2thfixr says:

    Thanks Matt. Keep us informed on the channel–some of us have to work!

  13. George says:

    Still too much bearish sentiment for the market to drop significantly. Most newsletters are getting even more bearish as time goes by based upon debt (to paraphrase Carville, it’s the debt, stupid). Now with war getting closer in the Middle East, the market is climbing that “wall of worry”.

    And to put that into Stringmese: I’m like a hog with a ring in my nose; I’ll follow the market anywhere it pulls me. 😀

  14. phil says:


    i agree ….too much bearishness in the face of strong market internals…that is a recipie for UPWARD EXPLOSION…maybe not at this moment because we could be looking at wave 5 up here..any dip is a buy opportunity for the real rocket ride up later to MARS and beyond..

    TAKING PROFITS on gap up open on 1/2 SCHX bought @ spx 1105 late yesterday in case this is wave B or 5….will evaluate how strong market is later….

  15. George says:

    Let’s see if SRS can make a new all-time low today. The inverse is getting juiced up. Can’t wait!

  16. George says:


    Nice move/call.

  17. phil says:

    2 TH

    took partial profits on large TBT position…still 60% long TBT… looking to add back on any bond rally

  18. phil says:



  19. 2thfixr says:

    Thanks Phil for the info, I’m staying away from the bonds though for now.

    Looks like we are backtesting the channel lines on the 60-min chart. do or die time.

  20. phil says:

    sold all SCHX…looks like triple zig zag

  21. phil says:


    possible C wave down on futures now….will buy back on stock plunge

  22. phil says:

    notice only 3 waves up from 1103 so far….overlap @1107 confirms it

  23. George says:

    Okay. And gaps nearing the fill mark. SPY broke out on that 5min I posted and is now below it. The 15min did not get a 9/36/15 on that bounce but could find support on the 9MA.

  24. phil says:


    QQQQ overlapped no question….ergo 4th wave correction continues and spike was prob wave B

  25. George says:

    Cisco shares halted in trading. (Source: CNBC-RT)

  26. phil says:


    DOW made a new high today…still ok for wave B

  27. phil says:


    DOW is your key to the market now ….it is the strongest

  28. George says:


    RUT has been strong. SPY gap filled.

  29. George says:

    RUT has been strong *too* I meant.

  30. phil says:

    phil says:
    July 29, 2010 at 10:08 am

    possible C wave down on futures now….will buy back on stock plunge

    DEFINITE …….C wave down in force……looking for initial rebuy

  31. 2thfixr says:

    Wow, Cisco tripped the circuit breaker to the upside…no sellers?!?

    SAN FRANCISCO (MarketWatch) — Shares of Cisco Systems Inc. were halted briefly Thursday after a jump up toward $26 tripped a circuit breaker, according to Nasdaq OMX. Trading was halted at 10:41 a.m. Eastern time, and resumed at 10:46 a.m. Nasdaq reported a pause threshold share price of $25.6960 for Cisco. Shares of Cisco were flat at $23.39 in recent activity.

    Settled at $23.28 as I write this….hmmmm, very interesting.

  32. phil says:


    obvious 3 of C down now ….looking for a bounce then i will buy the next plunge

  33. Dressguard says:

    Nice. Another session like this tomorrow and we have a “buy the dip”-day.

  34. 2thfixr says:

    Makes sense Phil if you are bullish. Perfect strategy to buy the 5th wave of C.

  35. 2thfixr says:

    Broke even on SDS bought last Friday at 1097. Holding just a mild short position in trading account and mostly cash again. We’ll see if 1089 holds and go from there.

  36. Mitch says:


    I’ve always liked CSCO – games or not. Did the tech bubble ever really burst? Hmmm

  37. 2thfixr says:

    Phil, looks like wave 4 is going to test the 5-min 36 MA in a simple zig-zag, then bring on wave 5 to test 1089.

  38. phil says:


    i am partial long already from 1094 (early) in case the low is in

  39. phil says:

    if i am right when this thing turns up it will scream

  40. phil says:

    2 TH

    bonds are telling you they want to go down…that should give you an idea about stocks

  41. phil says:

    we retraced 38% of the c wave

  42. phil says:

    took profits from 1094

  43. phil says:


    bought some 10 yr notes here…..i like long 10yr… short 30yr

  44. phil says:


    hope you guys had a great day trading….thats it for me ….hasta!

  45. George says:

    SPY hitting 15min 36MA resistance.

  46. 2thfixr says:

    P, for me, yes, I did better than I normally do. Breaking even on a poorly timed SDS trade was nice. When you’re yelling, you should be selling….so I did!

    I’ll wait for GDP to help me make a decision, as well as month end on Molarvision. Golf tomorrow AM.

  47. 2thfixr says:

    Good pickup Phil. Definitely not wave 4 of C, so here we go up.

  48. George says:

    SPY has made a 61.8% retracement on the 5min.

  49. 2thfixr says:

    Big time selling into the close. Exact opposite of yesterday’s close Joan…big sellers stepping in over the last few minutes. They correctly found the gap up in the AM today. Will they correctly indicate a gap lower tomorrow?

  50. stringm says:

    Comments to follow after my turkey burger has been consumed!



  51. George says:

    Stringm, don’t forget to take off the feathers. :)

  52. George says:

    Here’s SPY’s weekly. It is attempting a backtest of the 36MA resistance. Price has gone over, then backed off. The week isn’t over of course, and it could be another week or two before this is resolved. Either way, a good breakout is coming.


  53. stringm says:

    I said last night to be on TWM like a “Chicken on a June Bug” if it failed the 36MA. I was long this morning IWM. On the gap up I was wanting out, it had fooled me once yesterday. Fool me once shame on you, fool me twice shame on me! Gapped up and got below the Open Signal, and I was history. When it went below the 36MA I was in TWM. The hammer confirmation got me back flat at 12:40.

    Then it went back and tested the 21MA and failed, and is still below the 36MA. It looks like it wants to fall! Beats the heck out of me, but with GDP in the morning I decided flat was the place to be. If 1085 fails on SPX I would be more aggressive on the defensive.

    I know this was extremely important for all of you, so I just had to post! Have a good evening.

    Rangers are up 2-1, Go Rangers. If they make the playoffs remind me to tell you my Texan in Hell joke!


  54. stringm says:

    What I don’t show on the chart is the 50MA, it is below for support. So if it fails that you can get a little more pumped. But, then it could fail just for a bar or two, and some news of the Fed putting ATM machines on every street corner that issues G notes for free, and there you’ll be.


    I would rather be lucky than good any day!!

  55. stringm says:

    What I failed to mention was it has failed the 21MA twiest (Texan for twice!). Also, the 21MA on the first failure, was higher than the last failure! Hmmm!

    Sleep tight, and don’t let the bed bugs bite!