Diary of a Financier

IWV intraday update: Chart morphs; breakout & confirmation can signal bottom

In Capital Markets on Fri 8 Aug 2014 at 09:58

Some updates on the broad market, which I noted had begun a possible bottoming process yesterday:

I’m watching IWV for a tradable signal, since its fulcrum bottom is a higher probability pattern than the diamond bottom in SPY.  Here are the tradable signals I’m awaiting before adding to equity exposures, either:

  1. $IWV 15min fulcrum bottom breakout now > $115 right shoulder resistance
  2. $IWV 15min fulcrum bottom holds neckline support @ $114

What ended-up happening was more akin to the latter. IWV curled lower in the afternoon yesterday, holding that $114 neckline support until collapsing beneath into the close. Despite futures ($ES_F) printing -75bps through much of the overnight session, we opened today higher, dubbing yesterday’s close a bear trap.

Technically, IWV’s 15-min fulcrum bottom is still en force, but it has also morphed into a falling wedge (as has SPY’s diamond bottom) with 3x bull divergence. IWV 15min/1min 2014.08.08Both patterns are relevant here, but I’ve turned my attention to the falling wedge in the immediate term, because it’s a high probability setup on the verge of breakout with the 1min @ $114.2 trendline resistance now.  Redoubling my confidence in this setup, IWV’s daily LT bull channel is holding trendline support right here too.

I’m awaiting confirmation of a sustainable breakout before adding equity exposure.  That confirmation should come from the following sequence:

  1. $IWV 15min falling wedge breakout w $115 target, then
  2. $IWV breakout > $115 (falling wedge target & fulcrum bottom right shoulder)

It’s generally difficult and dangerous to time the breakout of a falling wedge pattern, but IWV’s current structure has wound tightly into a vertex, suggesting that at least a ST breakout is neigh.

–Romeo

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