Capitalizing on IWM Deterioration
by Mike Paulenoff
May 16, 2014 • 12:00 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
ETFs for precious metals, energy, currencies, and an array of equity indices and sectors, including international
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More Top Calls From Mike
On Friday June 17, Mike Paulenoff posted an alert to MPTrader members about an emerging setup in AMZN:
AMZN is one name that pops out at me that should benefit from an initial and sustained correction in traditional energy and transportation costs. AMZN needs to climb above and sustain 110 for my work to generate a more confident technical signal, otherwise, I cannot rule out another loop down that tests and breaks key May-June support at 101.26 to 101.
Last Wednesday, prior to the official FOMC rate hike of 75 bps, Mike Paulenoffwarned MPTrader members about the likelihood of additional weakness in the beleaguered home builders, writing about the ITB (iShares US Home Construction ETF):
In that, neither my pattern work nor my intermediate-term Momentum gauges offer much technical confidence that ITB will be able to carve out a meaningful corrective basing area in and around 53.
Back on May 13, amid a thrust in the price of Crude Oil from $95/bbl to $112/bbl, Mike Paulenoff alerted MPTrader members to an actionable technical setup in energy producer PSX (Phillips 66), writing:
My work has been extremely friendly since the beginning of May, looking for PSX to break out of its 11-month corrective accumulation pattern that will trigger a thrust towards a potential target zone of 110-115.
On Thursday May 19, in the midst of some serious weakness and carnage in the retail sector that had equity market-watchers doubting the resiliency of the almighty US consumer, Mike Paulenoff turned MPTrader members attention to PARA (Paramount Global), writing:
For the past 5 months, we could make the technical argument that PARA has carved out an accumulation-base formation that attracts buyers every time the stock dips beneath 29.00. We can also make the case that every time the stock climbs above 36.
On March 11, with AAPL in a month-long down-leg and trading at 156.34, Mike Paulenoff posted a relatively bullish analysis for MPTrader members, writing:
I am watching AAPL more closely than usual these days, as a bellwether for the health/vulnerability of the overall market.
