The iShares Russell 2000 Index (NYSEARCA:IWM) has a beautiful bull flag on the daily chart. Most investors would look at that and think it is going much higher. However, they could possibly be getting faked out hard. The flag pattern has lasted for nine days with no breakout yet. Once a bull flag has matured it needs to rip higher quickly. If it does not make its move, failure is likely. When a bull flag fails, the resulting opposite move (in this case down) is epic.

How do you know if it fails? Any daily close below the consolidation pattern low ($119.00) would signal failure. Boom to the downside it would go. Probably falling to $108.00 before finding major support. This would be a 10% drop.

Bull flags are great but like a human being, their best chance of success is their middle life (strongest years/candles). In other word, early on they are weak and when they are old (late) they are weak. This pattern is nearing its old age and failure may be a real possibility.

By Pro-Trader

Markus Telle