IWM - Trouble ahead

Technical Analysis: Elliott Wave | IWM CMP: 223 | Dt - 15th Oct'24

Oct 16, 2024

Tl;dr - IWM has one of the cleanest charts adhering to various EW guidelines. And it is suggesting that a massive Wave C decline lies ahead. This outlook is not for short term, but given how far Wave B has retraced, the start of the decline is not years but merely weeks/months away. Regardless, 2025 will likely be a tumultuous year for Small cap stocks

Simple speak

Analysts seem to think it is a good time to buy IWM, with a Buy or Strong Buy rating.
AlgoChirp’s EW analysis suggests IWM has a massive downside potential (30-50% drop) and very little upside potential (5-7% rise) at these levels.

Chart #1 - Decades long pattern unfolding

TA speak - Elliott Wave analysis by AlgoChirp

From its inception, IWM has followed Elliott Wave guidelines to the T. Price high that was made in 2021 can be labelled as a Wave 5 top with high confidence given what has transpired since then, corrective wave pattern (A-B-C).
It seems this corrective pattern is now nearing the end of Wave B. If this count is correct then the next leg down will be a swift one in Wave C.
Red box in Chart #2 below is the length IWM price will likely traverse. It can always be lesser in magnitude but a 30%-50% drop is likely on the cards. It is important to note that this Wave will take its own time to play out with various ups and downs.
Alternate count (Chart #2) - Incase the current perceived Wave B breaks through above the red lines in Chart #2, then the current count described above would invalidate and we will need to reassess the situation. However, at this point, this alternate count is of low probability.