Russell 2000 (IWM) Head and Shoulders Suggests More Downside
Updated
A head-and-shoulders (H+S) pattern in the IWM suggests more downside.
A while back I posted about the downward breakout from a nearly 12 month trading range in IWM. At the time, I had not seen the H+S pattern that had formed. The breakout (violation of the neckline) in the H+S pattern occurred several days after the downward breakout of the trend channel.
CMT_Association posted recently with excellent Fibonacci and P&F analysis providing credible targets / objectives to the downside. His post also pointed out IWM's relative strength versus SPX. IWM has been relatively the weakest major index in the US the past year.
To add support to the downside targets discussed by CMT_Association, I would note that one measuring objective for a H+S pattern is to calculate the maximum depth from the head of the H+S pattern to the neckline and project that distance from the breakout point. This method yields a target of approximately 174-175 in the IWM (ETF tracking Russell 2000). This 174-175 target based on the H+S pattern, interestingly, lies between the two Fibonacci retracements discussed by Stewart in his recent insightful post, which were 169.52 (.50) and 186.90 (.382).
A while back I posted about the downward breakout from a nearly 12 month trading range in IWM. At the time, I had not seen the H+S pattern that had formed. The breakout (violation of the neckline) in the H+S pattern occurred several days after the downward breakout of the trend channel.
CMT_Association posted recently with excellent Fibonacci and P&F analysis providing credible targets / objectives to the downside. His post also pointed out IWM's relative strength versus SPX. IWM has been relatively the weakest major index in the US the past year.
To add support to the downside targets discussed by CMT_Association, I would note that one measuring objective for a H+S pattern is to calculate the maximum depth from the head of the H+S pattern to the neckline and project that distance from the breakout point. This method yields a target of approximately 174-175 in the IWM (ETF tracking Russell 2000). This 174-175 target based on the H+S pattern, interestingly, lies between the two Fibonacci retracements discussed by Stewart in his recent insightful post, which were 169.52 (.50) and 186.90 (.382).
Note
Note: The measuring objective I discussed for a H+S pattern comes from Martin Pring's bible on technical analysis.Note
An inverted H&S appears to be forming on intraday charts. So if confirmed (a breakout above the inverted H&S neckline), this could negate the bearish H&S we saw from Sept. 2021 through Jan. 2022. And it might also negate the bearish whipsaw (breakout upward through the top channel line). Keep an eye on the inverted H&S and the intraday peaks as resistance around 203.50 - 203.90.Note
A break of this neckline around 204 would actually turn the situation bullish in the short-term (2 weeks to 2 months)
Note
The inverse H&S neckline was broken to the upside on Feb. 15-16. This looked convincing at first. Low volume betrayed the move, though: volume was well below its 34 EMA. The breakout reversed and now IWM is headed lower again as discussed in the original post above (see the massive H&S pattern and the break of a long-term trend). Keep monitoring IWM / Russell 2000 for further weakness. I have an options trade (call credit spread) opened yesterday when IWM was trading around 203. The call credit spread profits as the price declines, so it's a bearish play. Strikes are 195 / 200.
SquishTrade
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