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Truth is timeless: “Markets never change” – Jesse Livermore, 1923 The early masters, Livermore, Wyckoff and Loeb isolated themselves from the crowd and crowd thinking. None of them ever graduated high-school and yet they each became legends in the market. Their techniques have been time-tested.... More
  • Russell 2000: Due For A Bounce? 2 comments
    Aug 4, 2014 1:40 PM | about stocks: IWM

    Let's look at the iShares Russell 2000 ETF (NYSEARCA:IWM) and decide if it is "due for a bounce".

    Going long the IWM to play any potential up-side would require the following actions, decisions:

    • Abandonment of the short positions (established late June and early July) in the IWM via the Direxion Russell 2000 Bearish 3X ETF (NYSEARCA:TZA)
    • Loss of those low risk positions (now well in-the-green) and loss of the opportunity to "increase the line" in the TZA
    • Positioning against probability concerning the valuations of the Russell 2000 Index. This video link and time stamp 01:05 more specifically, indicates that to position long the IWM at this point in time, is to position against the near certainty that the index produces a negative year-forward return (historically) when at current valuations.
    • Ignoring July's out-side-down monthly reversal. This type of reversal has only occurred twice in the past six years. Each time it took place, the IWM has declined markedly.
    • Ignoring the near-term technical condition of the IWM as shown below in the 3-Day chart. Support has been penetrated (with volume) and is congesting at a lower level.
    • All of the above facts or assessments point to lower levels. The 3-day chart below indicates that there must be a sustained amount of demand to get the IWM back above the 112.25 area. Doing so at this point looks to be a low probability.

    (click to enlarge)IWM 3-Day Chart

    Chart by TeleChart

    When all of the above is taken together, exiting the position to play any possible upside is to go against the trading tenets laid down by the masters nearly one-hundred years ago.

    Our objective is to emulate those that have gone before and have already provided answers to the market questions. Sometimes, that requires that we wait........... wait for the next opportunity.

    Livermore specifically stated that the man who can be right and sit tight is uncommon. He wrote that it is one of the most difficult things to learn.

    However, that is what is being done at this point. If this move is to progress lower as we think it will, there may be other low-risk opportunities for entry. The go-forward plan is to act quickly and decisively on those indications should they occur.

    Disclosure: The author is long TZA.

    Additional disclosure: Illustration only. Not investment advice.

    Stocks: IWM
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Comments (2)
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  • SimpleStuff
    , contributor
    Comments (83) | Send Message
     
    I am so glad I found this posting, Mr. Mosgovoy. I did not know about it until I started searching for information, after the market close today, for anything on the IWM. I sensed a huge decline coming in the Russell 2000 a few days ago and got into the TZA. The bouncing around since then has been unnerving - though we almost got through 108-109 in the Russell today before heading back to 111. I love this post. I will keep my TZA and my nerve. In a webinar today, another analyst suggested smart money is buying the Russell and selling its large caps--because it has some valuation upside left. Based on some other Seeking Alpha information, I don't see how that could be.
    Thank you for this--very much!
    5 Aug 2014, 09:18 PM Reply Like
  • Paul Mosgovoy
    , contributor
    Comments (120) | Send Message
     
    Author’s reply » Thank you for the comments.

     

    To start off, I should say that anything can happen in the markets. The IWM may indeed stabilize and move higher. If it was to do that, it would most likely give clues to us before that move began in earnest.

     

    At the present time however, the trend is still down. A penetration to the up-side of today's high at 112.23 would call the down-trend into question. We will see how it goes.

     

    At the same time and for reasons that I do not want to reveal while still on Seeking Alpha, I have decided to move to a different venue (LinkedIn) effective 8/15/14.

     

    You are welcome to request a connection with me via LinkedIn. My URL for that site is here:

     

    http://linkd.in/1AT6ZgD

     

    I would welcome (and accept) your request.

     

    Thank you again for your comment and interest.

     

    Best regards,

     

    Paul Mosgovoy
    5 Aug 2014, 10:09 PM Reply Like
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