IWM Fade Trade Follow Up / Market Update

Friday I said I thought you;'d have to be very nimble this week or at least early this week to make trades work.

The Russell 2000 (IWM ETF) historically has led "risk on" moves or what you might call bounces or rallies, the fact that the R2K as of yesterday's close was the largest laggard, with the Dow right behind it at a 0.28% gain on the entirety of 2014 from the 12/31/2013 close, is telling me something about the market.

If you don't believe me about the R2K's importance (it use to be the SP-500), just go back and listen to any of Bernanke's Congressional testimony, he never references the household name, S&P-500 or even better, the Dow which everyone has heard of, trader or not, he talks almost exclusively in terms of the Russell 2000. I had seen a study someone had put together showing how many rallies/bounces were solid vs how many failed depending on whether or not they were led by the R2K, the ones led by the R2K had a much higher chance of being genuine whereas the ones like this year's gain in the SPX vs the IWM, tended to be the ones that failed or were shorter lived / weaker.

As for the charts specific to today, you probably recall the earlier "Change of character " post, Change in Character Index Futures... which was exclusively the Russell 2000 futures, then add these charts to today's trade.

 IWM 1 min leading negative...

2 min shows the opening positive divegrence and a leading negative migrating from the intraday 1 min

The 3 min also showing migration of the negative divegrence and...

The 5 min , the reason I chose IWM calls last Friday  is no longer leading as it was yesterday at the close, but is now in line. I would expect at some point the 3 min chart's negative divergence will migrate to this 5 min.


Looking at the TICK Index, you can see mid-morning weakness at extremes of more than -1000, then a range with really little trend, the most recent new trend seems to be developing to the downside again and hitting -1000 levels on the TICK. This just doesn't look right considering the IWM's position, intraday trend and gain today.

I'm really starting to like these Heiken Ashi Candlesticks, unlike normal Japanese candlesticks which are constructed using the current bar's open, high, low and close, these H.A. candlesticks use the previous candle's information as well, they are a bit more delayed as it's almost the same effect as putting a moving average on data, but they seem to give good signals and I like the ease in which you can follow the strength of the trend, again, like volume analysis, I'll likely put up a link for Heiken Ashi candlestick use as it is different than normal candlesticks, I like to use both as H.A don't have the patterns that normal candlesticks have which can be an advantage as well.

Also, just after I entered the position, this showed up...

IWM 15 min chart