A Favorite Chart Pattern – IWM – 26 December 2014

As a long time trader, I’ve developed a few favorite chart patterns such that when I see them, I am almost certain to take them or, in the case of stock chart patterns, suggest them.

One such pattern is the Rising Triangle and the Russell 2000 (IWM) is flashing just such a pattern.   I especially like the fact that the pattern is occurring in the Russell since by virtue of it covering 2,000 stocks, it is by definition broad and representative of the overall market.

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As the chart shows, price has tested the all time high around $121 twice already and is approaching it for a third try.  Historically, the ability of Support and Resistance lines/zones to hold is inversely related to the number of tests.  In other words, the more times price tests a given level, the more likely that level is to fail.

The allure of the Rising Triangle is that the triangle is created by generally higher lows to go along with those multiple tests of Resistance.  This creates the impression that price is literally pushing against Resistance from below.

Normally, I like the rising trendline to be pretty smooth and not interrupted as this one was in October of this year, but I’m willing to overlook that just as buyers seem to be.

Have a look at a couple of previous very similar patterns in IWM.

From late 2012 into early 2013.

Russell 2K 2 26 Dec 2014

 

From early 2009 into late 2010

Russell 2K 3

Do the results of the previous instances of this pattern guarantee that this occurrence will produce the same outcome?  Not even a little… but it certainly makes it far more likely.

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