Small trade on IWM taken for final market push
First off, I wanted to thank everyone for the kind comments and likes on my DXY post a few days ago. Really nice! I've been watching the S&P 500 very closely for months now climb back towards it's previous highs. Having taken long profits at 3200 and again at 3270 I haven't much participated in this last leg. A few day or short swing trades in gold and tesla but mostly watching and waiting for major wave 1 to reach it's targets.
However, yesterday and today I became interested in the small cap IWM chart. With dollar strength small caps typically do better at leading the market. Fundamentally, the IWM is levered more to the domestic US economy and has shown out-performance over the S&P 500 in the backdrop of DXY strength (dxy now showing bullish divergence on the daily MACD). Although this trade's term is short I like having some supportive historical data to compliment the technical picture, risk reward and market structure.
The chart: purple trend-line from March lows held today and rallied up. The 78% retracement level from the March lows and the 13 day EMA are also converging at the same area to provide additional strength (the 13 EMA has held all tests since July 24th). Below is the 21 day EMA and the March 2nd swing high. A breach of these levels would negate staying long and they equal a 1.56% loss. However, if we hold today or test the 21 EMA/swing high area then rally I see a 7.3% upside potential to the unfilled down-gap from February. That would be wave 5 of 5 and very close to all time highs. Potentially beginning the major wave 1 top zone.
We'll see what happens. I took the trade this morning with a small position to limit downside risk. The S&P 500 target is 3453. I'm betting if that manifests the IWM will lead or run in tandem to the fill the gap. That would be a nice trade prior to getting ready for potential Wave 2 short strategies on the s and p.
However, yesterday and today I became interested in the small cap IWM chart. With dollar strength small caps typically do better at leading the market. Fundamentally, the IWM is levered more to the domestic US economy and has shown out-performance over the S&P 500 in the backdrop of DXY strength (dxy now showing bullish divergence on the daily MACD). Although this trade's term is short I like having some supportive historical data to compliment the technical picture, risk reward and market structure.
The chart: purple trend-line from March lows held today and rallied up. The 78% retracement level from the March lows and the 13 day EMA are also converging at the same area to provide additional strength (the 13 EMA has held all tests since July 24th). Below is the 21 day EMA and the March 2nd swing high. A breach of these levels would negate staying long and they equal a 1.56% loss. However, if we hold today or test the 21 EMA/swing high area then rally I see a 7.3% upside potential to the unfilled down-gap from February. That would be wave 5 of 5 and very close to all time highs. Potentially beginning the major wave 1 top zone.
We'll see what happens. I took the trade this morning with a small position to limit downside risk. The S&P 500 target is 3453. I'm betting if that manifests the IWM will lead or run in tandem to the fill the gap. That would be a nice trade prior to getting ready for potential Wave 2 short strategies on the s and p.