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SUPPORT & RESISTANCE


A Confluence Of Support For IWM

02/15/06 01:44:33 PM
by Arthur Hill

The big trend is up and a confluence of support indicators suggests that the mild correction may be nearing an end.

Security:   IWM
Position:   Accumulate

There are many technical methods with which to identify support, and I spotted three coming together around 69-70 in the Russell 2000 exchange traded fund (IWM). First, the 50-day simple moving average (SMA) marked successful support tests in early November and early January (Figure 1). This rising moving average now marks support just above 69.5. The rising nature confirms the current uptrend and underlying strength.

FIGURE 1: RUSSELL 2000 ISHARES. The 50-day simple moving average marked successful support tests in early November 2005 and early January 2006.
Graphic provided by: MetaStock.
 
In addition to the moving average, there is a rising trendline extending up from the October lows. This trendline was touched three times in October. However, I would only consider this one touch because these prices are quite close together. The second touch occurred in early January, and this trendline now marks support around 69.

The third item is broken resistance. The stock broke resistance at 69 in early January, and this level turned into support a week later. This broken resistance level still marks support at 69, and we now have three items converging around 69-70 to mark support.

Now that we have identified support, it is time to look for a bullish pattern. Lo and behold, there is a bull flag working. Bullish flags slope down and mark mild corrections. The stock surged in January and was certainly entitled to a correction. A break above the upper trendline would confirm the bull flag and signal a continuation of the January advance.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
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