Capitalizing on IWM Deterioration
by Mike Paulenoff
May 16, 2014 • 1:00 AM EDT
On Wednesday afternoon, May 14, we added the IWM August 110 Puts at 4.20 to protect long exposure through the summer months. The underlying IWM (Russell 2000 Small Cap ETF) was trading at 110.55 at the time of entry. The very next day, on Thursday morning, the IWM traded down to a low of 107.44, causing the August 110 Put to appreciate to 5.75-5.90.
We noted on the chart on Wednesday (see below) that the IWM "has carved out a significant multi-month top formation, and is biding time ahead of a very ugly breakdown beneath 110-108 that will unleash a waterfall of selling pressure that projects to 95.00-93.00. With the 50-day EMA (113.16) bearing down on the price structure AND the flattening 200-day EMA, the IWM looks particularly vulnerable to serious weakness in the days and weeks directly ahead."
MPTrader is in an excellent position to take advantage of further near- and medium-term deterioration in the Russell Small Cap ETF (IWM).
Mike Paulenoff is the author of MPTrader.com, a real-time diary of his technical analysis & trade alerts on
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More Top Calls From Mike
On Thursday of this past week, Mike Paulenoff alerted MPTrader members of a long set-up in CRM (salesforce.com), writing:
"After making yet another new multi-month corrective low at 212.98 last Friday, CRM has turned up and has climbed above initial resistance at 219.50-220.00, which triggered an initial 'long alert' in my work."
Mike added: "My work argues that CRM has turned up, and has triggered a preliminary buy signal.
Last Wednesday afternoon (Jan 13), with the IWM at 210.76, Mike Paulenoff told MPTrader members:
"The Russell 2000 Small Cap ETF is just about 0.5% off of its all time high. As long as any weakness is contained above 204.30, my near-term pattern set up from the 1/04 pullback low at 190.94 is poised for still higher ATHs above 211.73."
The IWM reached a high of 215 the very next day.
Back on Dec 2, after salesforce.com (CRM) reported strong earnings but price languished, Mike Paulenoff told MPTrader members:
"Weakness in reaction to the news has violated the prior significant near term pivot low at 228.66 (10/30), triggering the Bearish Scenario (Red line) that calls for a deeper correction that projects into the 220 area next, and if violated, to the 205 - 200 target zone.
On the evening of November 30, after Zoom Video Communications (ZM) reported earnings, Mike Paulenoff cautioned MPTrader members about the stock;
"My pattern work argues that ZM started a major correction off of its 10/20 all-time high of 588.54 into the 11/10 low at 366.28. The rally from the 11/10 low at 366.28 to today's high at 487.79 (+33%) to my mind represents an intervening recovery bounce prior to a second bout of weakness that completes the larger corrective process.
During late November into early December, Mike Paulenoff became increasingly concerned about the price behavior of Facebook (FB).
The stock not only was grossly underperforming the NDX but also was in the news constantly in an unflattering light regarding its leader, Mark Zuckerberg, and censorship accusations. Since early November, the NDX is up about 10%, while FB is unchanged.
