After a final rally higher off the April lows, the iShares Russell 2000 Index Fund (IWM) put in its year to date high on May 22nd, along with the S&P 500. Over the next few weeks of trading two things changed notably: 1) intraday volatility in equities spike higher, indicating increasing nervousness on part of at least some market participants and 2) bond yields shot higher.

As medium term tops are rarely defined by a single day, on June 18th the index re-tested the May highs, which ultimately served as a double top.  The ensuing four day and roughly 5.65% sell-off brought the index right into a first important support zone near $94.20, which not so coincidentally is also a confluence zone made up of the 100 day simple moving average and the November 2012 up-trend line.   As an fyi, the S&P 500 has already broken this up-trend line, thus if and when the Russell 2000 were to snap it too, things could turn decidedly more bearish in a hurry for the broader market.

iwm daily chart

Much closer up on the daily chart of the iShares Russell 2000 Index Fund (IWM), Monday’s indecision (doji) candle is better visible.  The ensuing oversold bounce has thus far lasted about 2.40% and brought the index right into the important 50% retracement of the entire sell-off.  From here, bears are starting to again receive better odds on the short side, up to the $97.50 level, which corresponds to the 61.80% Fibonacci retracement level of the sell-off.  Any push above there and the bulls might just be able to run with it again.

If the area between $96.80 and $97.50 does indeed manage to hold as resistance, a next downside target for the bears to consider sits around the $92.40 mark.

iwm close up


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