After Reaching A Trend Channel High, The Russell 2000 (IWM) Flags Out

The Russell 2000, which had experienced an incredible 48% upside price rally after the November 2020 US elections, has recently peaked near an upward sloping price channel that originated shortly after the 2010 Housing Crisis bottom. The incredible aspect is that the post-COVID price rally accelerated at such an extreme rate that the current peak level (highlighted by the MAGENTA circle on the chart below) represents an extreme rally phase in price. Unquestionably, at this point, the markets are searching for a new trend and the IWM has consolidated into a sideways Flagging price formation.

I believe global traders are currently searching for new opportunities and have taken the past 45+ days to re-evaluate the extent of the post-COVID rally in the markets. Ironically, the IWM and SPY show similar types of extreme rallies to a previous (2009~2010) price channel high. It is the opinion of my team and I that the markets have entered an over-enthusiastic rally phase to reach these levels and are currently stalling while searching for a new trend.

IWM FLAGGING SIDEWAYS – WATCH THE $206 SUPPORT LEVEL

The current price Flag formation in the IWM chart highlights the extended range for this Flagging price formation. It also highlights the extreme rally phase that took place after the November 2020 elections. At these highs, combined with this Flagging price formation, a moderate price reversion is quite likely if key support is broken in the near future.

Our research suggests the $206 level on this chart is critical support representing a key price level in the event of a breakdown in price as the Flag formation apexes. Further price targets are available using a type of Fan price extension from the 2009 lows and encompassing the 2018 highs and the 2020 lows. We’ll discuss the downside targets further in this article.

(Click on image to enlarge)

This Daily IWM chart further illustrates the moderate price resistance near the Flag boundaries. Recently, we can see the upper Flag price channel has acted as a strong resistance level as price continues to tighten into the range.IWM opened above the upper Flag price channel this morning and is now trading back below it. This is what we call a “scouting party” – where price attempts to explore new price ranges to see if moderate support or resistance is found outside of these boundaries.

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