IWM Managed to Retest the Bottom of its Purple Rising Megaphone Top Today
iShares Russell 2000 (NYSE:IWM) retested the bottom of its rising megaphone topping formation today.
It should now continue down to its red megaphone bottom before a bounce to its VWAP and a breakout downwards.
But IWM did something interesting to get down to its August 24th low, and it’s important because it’s another signal that IWM will continue down to at least its red megaphone bottom.
IWM Put in a Falling Wedge (Purple) that Broke Out into a Falling Megaphone (Orange)
IWM completed a falling wedge (purple on chart) on its approach to its red megaphone VWAP. Because it had the minimum required alternating touches on the formation sides, it would usually complete the move with a sideways bottoming pattern.
And IWM began forming a classic megaphone bottom for its falling wedge.
But instead of reversing the megaphone lower low at roughly the wedge bottom as it usually would, IWM broke out hard through the wedge bottom. That’s a classic set-up for a falling megaphone. (You also see this set-up with price channels.)
The falling megaphone has another wave down to put in, and it would usually be the biggest, fastest wave of the formation. It would typically take the price down for a small breakout through the formation bottom, then complete with an inverse H&S inside the formation before a retrace to the formation top.
That suggests IWM has a hard wave down coming up, to be followed by a powerful retrace.