Is the Russell 2000 Index Bear Flag Setup a Warning to Investors?

Michele Schneider
russell 2000 index bear flag rally end warning stock market chart april 7

The Russell 2000 Index and ETF (IWM) weekly chart has helped us navigate the bull and bear market runs for years.

While you hear so much about a V-Bottom, I see no evidence of it in this key stock market index.

Significant?

Also, considering the Russell 2000 came in having to clear the outside week trading range or move over 117.60, it did so early on and wound up closing at 112.95.

Take that as a sign of weakness or a sign of a healthy pullback… that is up to you.

Regardless of where you stand, take a look at the potential setup on the weekly chart and ask yourselves: Do I want to go counter-trend or trade in the direction of the overall trend?

In the spirit of objectivity, we can look at the weekly chart of the Russell 2000 (IWM) as either a bear flag forming, or consolidation before another rally.

Case 1: A bear flag forming

The black trendline attaches the closing levels of the last 3 weeks. With candlestick charts, that is easy to see. Where the body of the candle ends is the weekly closing price.

Should this week, IWM close under 104.50-105.00, that is a break of the bear flag. The flagpole within the ellipse shows a measured move of $45 down if that level breaks. Sounds scary.

Case 2: Consolidation before a breakout

IWM needs a weekly close over 116.00-117.60. Then, that would negate the bear flag. In that case, IWM could rally to around 135 before we reassess.

As of today, the instrument trades in the middle of the worst and best case scenarios.

That makes it lukewarm in a bear trend.

S&P 500 (SPY) 258 support, 264.49 pivotal and today might have been the top. 

Russell 2000 (IWM) 112.56 pivotal, 105 support and 108 resistance

Dow (DIA) 236.80 huge resistance and 218.60 support

Nasdaq (QQQ) Got to 200, which I wrote was a short. So, we shall see. Over 202, probably not and under 188, yeah

KRE (Regional Banks) 35.00 resistance 32 support

SMH (Semiconductors) If took the 127 as a short, should not clear 130. Under 117 not very good looking

IYT (Transportation) 145 resistance, 137.45 support

IBB (Biotechnology) Teetering on support at 109

XRT (Retail) 30.00 pivotal

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The author may have a position in the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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