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Time For A Decision For Russell 2000?

09/21/11 02:15:18 PM
by Donald W. Pendergast, Jr.

The ParaSar trading system has just gone short on IWM on its 60-minute time frame. Is it time to dump small caps?

Security:   IWM
Position:   N/A

Let's face it, July, August, and even parts of September this year have been a pretty scary time in the broad markets. However, since making a significant panic low on August 9, 2011, the Russell 2000 index (IWM, .RUT) has gradually been phasing out of the panic mode into a genuine mode of accumulation. The big question now is, of course, will this trend not only continue, but also lead to a sharp break higher?

FIGURE 1: IWM, 60-MINUTE. While the chart indicates a ParaSar short sale signal only one day old, the bullish accumulation undergirding this market seems to be in general disagreement with the action of IWM itself.
Graphic provided by: TradeStation.
Using a very simple 60-minute chart of IWM that has the on-balance volume (OBV) indicator plotted (histogram at the bottom of Figure 1), we see that there has been a modest trend of accumulation under way since the major low on August 9, 2011, and that the rate of accumulation trend is just a bit higher than the rate of general price change trend on the price chart itself. In addition, the OBV is getting very close to its zero line for the first time in a while. A cross above this line would be generally thought to be bullish, so be sure to monitor this area every day until IWM truly decides which way it's going to travel.

Swing traders should keep tabs on this ParaSar setup in the 60-minute time frame, being on alert for a fast reversal higher in the next session or two, while traders in the five- to 20-minute time frames might want to use this chart as a general trend guide to help with timing their intraday trading regimen. As always, the stock market is treading upon new and unfamiliar territory, so be sure to use wise position sizing techniques, no matter what style of trading you prefer.

Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address:

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