Real Estate Leading The Way Lower
If we’re in the next down leg, IYR reversed over two weeks ago and is leading to the downside.
But first, the Russell 2000: The 4/23/20 update, forecast that if there was an up move, the measured target was ‘in the vicinity of 135’.
IWM topped out at 136.85 before reversing lower. That’s an error of only 1.37% in the forecast.
Now, on to real estate. Film footage from Jeremiah Babe at this link shows one of many abandoned or shuttered high end shopping centers.
The retail buyer is gone and presumed dead.
Real estate, barring some kind of bailout, may not be far behind.
Inverse funds (not a recommendation) for this sector are SRS and DRV.
The chart shows the forecast next leg down if IYR has pivoted lower.
Terminating Wedge (before open)
We’ve got a terminating wedge on the IWM, with declining upward thrust energy.
Low probability is a move higher to complete a measured move; target in the vicinity of 135.00.
Higher probability (based on thrust energy) is a pivot lower to start the next leg down.
A breach of last session’s high points to the measured target higher. A breach of the low, points to the next leg down.
Charts by StockCharts
Maximum Adverse Move:
In Tharp’s Trade Your Way To Financial Freedom, he discusses a max inverse move (against your position).
The crux of his discussion is to be prepared for such a move; To understand that it may happen at any time and to have a plan in the event.
That’s where the IWM is now in the pre-market. If we are indeed in the next leg down, look for this move to be very short lived.
An inverse move shakes out the weak hands so the professionals can either open positions on the cheap, or increase their already established line.
If the move can’t hold (for higher prices), it’s a short squeeze and the next leg down may be aggressive indeed.
Update (9:23 a.m., EST): pre-market activity in IWM is already showing erosion of the up-move.
Russell 2000 Down Over 4% In Pre-market Action
At 9:01 a.m., EST (thirty minutes before open) tracking ETF, IWM is down around 4%.
The corresponding inverse fund TZA, is up a solid +11.5% on nearly 450,000 shares.
If this is the pivot point, IWM is potentially headed significantly lower.
Fibonacci projection puts the bottom of the nascent wave (starting near IWM, 123.00), to around 47.00, just shy of the 2009 lows.
Tracking fund IWM along with inverse, TZA may have formed an aggressive trading channel.
If price action remains in this channel (shown on the compressed daily chart), we’ll reach the projected lows sometime in May.
That’s not May of next year, it’s May of next month.
Russell 2000: Next Leg Down
Price action in the IWM (Russell 2000 ETF), in a matter of minutes, is already much lower than pictured on the chart.
Inverse leveraged fund for this index is TZA, which has established a massive trading range from approximately 35 – 120.
The prior IWM move lower was impulsive and we’ve had counter trend action for about a month. The next move (if the analysis is correct) is where everyone recognizes, too late, that we're in an historic, sustained market decline.
As stated in a previous update on JDST, trading inverse funds (especially during volatility) requires the utmost in market skill and discipline. An inverse fund blow-up as what happened with JDST, is always a possibility.
In no way should any of the research and analysis on this site be considered investment advice (as sated at the bottom of the home page).