IWM Crazy Ivan

I hadn't thought about this in the expectation of weakness this morning based on where the 3C signals closed Friday, suggesting they pick up where they left off and we see additional weakness early this week/Monday morning such as we have, just as was forecast this morning in the A.M. Update or last night's, Sunday Night Futures and the Week Ahead or multiple posts near the close Friday.

However looking at what the IWM has done in breaking its range this morning and badly so with TICK readings of -1800...

TICK seeing massive selling, potential capitulation / short term selling event- look for volume to rise in the averages on a move lower that does not hold.

This would introduce the "Crazy Ivan" Concept.

Over the past several months I have shown you numerous assets that have used a Crazy Ivan double head fake to do what they could not within their ranges, XLF was one of the notable ones, although we saw it in UNg, GLD, GDX, numerous other examples.

IWM hasn't been able to break above it's 6 trading week range because it is weak, which is precisely why a break above would inspire bulls, however it still needs the momentum to push to such a breakout, just as XLF did or UNG when I sold it on the day of it's near 6% breakout, only to fail, NUGT, GDX, etc.

It's this same weakness in IWM that would cause it to fall after any such upside breakout, but first we have seen a downside break down. If you have read my two articles, * Understanding the Head-Fake Move Part 1 and * Understanding the Head-Fake Move Part 2 then you'll easily understand the concept and purpose of a Crazy Ivan and perhaps why we just saw the IWM break below the 6 week trading range that has held.

I terms ed the phrase Crazy Ivan shakeout (although I've seen others use it since) based on the movie, "The Hunt For Red October".

In the movie, Attack submarines would attempt to follow ballistic submarines of enemy nations and to do it undetected, they'd travel closely behind the enemy submarine in the region of their prop-wash where their sound/acoustic signature could not be picked up by the submarine being followed so Russian Submarine captains came up with a tactic to avoid this kind of tracking from behind called a "Crazy Ivan in which every so often the Russian submarine commander would order the submarine to do a 180 degree about face turn, in to the oncoming path of any potential subs tracking them and thus exposing them, also known as "Clearing the baffles". 

If you understand how a false breakout of a stop run head fake move produce reversal momentum, than you'll understand how a break below the IWM's range support, would give it the momentum to make an upside reversal and breakout, just like a crazy Ivan  , a turn 180 degrees opposite the intended direction and then another turn 180 degrees again back toward intended direction.

We've only talked about an upside head fake move in the IWM above the range which is meant to serve as downside reversal momentum, but we didn't address the inherent weakness in IWM that has kept it from making such a breakout for 6 trading weeks. A Crazy Ivan, initial downside head fake would help IWM get the momentum to make the upside breakout and look like this...

Here's the initial break, oddly timed after 6 weeks of staying in the range, just as we expect morning weakness to be followed buy the increasing probability of a head fake upside move. BECAUSE THERE ARE TWO SUCH HEAD FAKE MOVES ON EITHER SIDE OF THE RANGE, WE CALL IT A CRAZY IVAN SHAKEOUT, first shaking out longs and bringing in shorts that are used for upside momentum on a squeeze, then a breakout above bring in new longs and forcing them to sell on a downside reversal as stops are hit, the ultimate goal of the exercise. Thus I give you the CRAZY IVAN Shakeout.

Here's how it worked in XLF not too long ago...

After entering a half size position in FAZ (3x short Financials/XLF), waiting to add the second half ABOVE the range where risk was less and the entry better, it started to become clear after a 2 month range that XLF didn't have the strength itself to make the breakout move and I started to suspect a breakdown. At #2 on the first strong day below the range I closed my FAZ Financial short, even though it was up over 2% on the day and almost +8% the last 3-days. You'd think such a break below the support line of the range would be exactly what you'd want in a financial short, but this is how the market uses Technical Analysis against you. I quickly closed FAZ that day suspecting it was the first half of a Crazy Ivan shakeout, with intentions to re-open the position above the range on the second half of the Crazy Ivan even though this was t\only the first day, the concept is that strong it allowed me to correctly forecast XLF's move almost a month in advance and I left NOTHING on the table in closing the FAZ (3x short Financials) long that day. Soon XLF gathered the momentum of a head fake move and broke-out above the range, something it could not do on its own previously, the same as IWM, eventually I re-entered FAZ above the range and it came back down at a nice gain.

And that's how a Crazy Ivan works, which I suspect we are seeing now in the IWM. I'll be watching for accumulation signals, you too should watch for a candle that refuses to hold its lows on heavy volume, something like a hammer on heavier volume as this would indicate a short term selling climax and the probability we are close to the second half of the Crazy Ivan, the upside breakout we have been expecting since late last week.