Russell 2000 Gaps Present Real Targets

in #money4 years ago

Recent gaps in price action in the Russell 2000 ETF (NYSE:IWM) presents a clear picture of future price targets and support/resistances. Gaps are one of the most common forms of technical analysis techniques. They represent “voids” where price activity has skipped a range of price as it advances or declines aggressively.

Gaps are commonly used as targets for future price activity – where price attempts to “fill the gap”. In technical analysis theory, any gap that appears should eventually be “filled” by price in the future. Thus, any open gap that does not fill is still considered an “open target range.”

IWM Provides Unique Perspective

We're focusing on the Russell 2000 because we believe it provides a unique perspective on the markets related to the recent COVID-19 downside price swing and the recent recovery. The mid-cap market
sector tends to trend more quickly than the U.S. major indexes and can sometimes provide a clear picture of more true price trends.

In this case, we've highlighted the downside price gaps in YELLOW and the upside price gaps in BLUE. Two of the downside price gaps have been filled recently as price advanced higher after March 21, 2020. Additionally, the two highest downside price gaps have also been filled – leaving the lower two still open (unfilled).

This presents a very easy to understand method of identifying future price targets for both bullish and bearish price trends. Either price will rally to fill the upper gap, near $163~166, or price will breakdown into a bearish trend attempting to fill the $125~130 gap or the $108~109 gap.

The recent low price level near $133.28 broke previous Fibonacci low price levels from May 29. Because of this, we believe the current trend is moderately bearish. We would like to see a new lower low setup to confirm this new trend. When we consider the next price move in the Russell 2000 ETF, two very clear targets become evident, either the recent upper BLUE gap range between $145~149 or
the lower BLUE gap range between $125~129.

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