Russell 2k play

Here's a quick rundown of how I set up a swing trade. The idea is you're trying to follow the smart money, which isn't that easy because..it's the smart money. They are the house that always wins in the end. If they don't win the Federal Reserve will jump in and bail their asses out but that's not today's topic.

The following chart is IWM, the i-shares etf that tracks the Russell 2000 index. I'll play this using the etf TNA, which is the 3x leveraged version. I use IWM to time entry and exit though because although both etf's track the Russell 2000, the leverage on TNA causes a "decay" over time that makes exact price correlations skewed. For example the Russell will be challenging it's 52-week high today, as well as IWM. TNA is almost 4-points below it's previous high.

Below I've got two "1" arrows and two "2" arrows stacked on each other. Note that prices at arrow 1 are nearly identical to arrow 2. The bottom arrows pointing to the blue line indicate moneystream, and the number 2 arrow is well below 1. If the smart money was piling into this move up the arrows should be in the same area at the same prices. They're not. This is a negative divergence, and often indicates smart money "slipping out the back door" while letting the dumb money pile in at riskier price levels.

IWM daily chart

One divergence isn't enough for me though, so I try to stack the deck. Below is the 3-year chart. The arrows go as follows:
1. 62% fibonacci retrace of the bear market. 2. Current price level.

3. Negative Relative Strength divergence (price sloping up, this down)

4. Negative Rate of Change divergence

5. Negative MACD divergence.

For the new guys the 62% Fib retrace level is VERY big in charting..it often takes several attempts to overcome this area, and price often reverses here. As for the rest, that's 4 negative divergences giving price "the lie", at an important resistance area. If everything was cool these indicators should be chugging along with price instead of heading south while price goes north. The indicators don't always win...that's what the stops are for. But when I've got this many saying something different then what price is saying, I take a poke at price going the other way.

If the bulls win and IWM powers up a point or better than today, it's "On like Donkey Kong!" to SP 1220 and my short "fantasy play". I'll show that one later. Until then good luck out there...

IWM 3-year chart