Editor's Note

Wednesday's short squeeze powered this ETF right to major resistance where it came to a dead stop. The 200-day average on the Russell 2000 is 1,132 and the Russell closed at 1,128. The Russell IWM ETF is facing the same average at 112.56 and the ETF closed at 112.20. This is a classic case of resistance held.


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IWM - Russell 2000 ETF - ETF Profile

This is a simple play. The markets have rallied to resistance and could face a significant challenge in moving higher. The Russell broke over at 1,110 (111 on the ETF) and rallied right to downtrend resistance and the 200-day average. It is entirely possible the market will continue higher but there is a good chance it will roll over as well. The next few days will be critical.

The two-day short squeeze faded on Thursday and the markets did not sell off. They held their gains, which is bullish. However, we have a potentially negative event on Sunday with the OPEC meeting in Doha, Qatar. If those bozos fail to produce some kind of agreement that will satisfy the market we are going to see a crash in oil prices that could knock the market significantly lower.

We are also going to see a deluge of earnings next week and the earnings warnings are thicker than flies at a picnic. If the first few companies miss estimates it could sour the market.

On the positive side, when the major indexes near historic highs those highs tend to turn into price magnets. The Dow is only about 425 points from its historic high. That is a powerful market dynamic. The S&P is 50 points below its high.

We have multiple forces pushing and pulling the market and those will increase next week. I am recommending we enter a bearish position at $111.50 on the ETF, currently $112.20.

I do not want to be short unless the market rolls over.

With an IWM trade at $111.50

Buy June $109 put, currently $2.24. Initial stop loss $113.50.