I have been long the DIA (Dow Diamonds) vs. short the IWM (Russell 2000 Small Caps) in our ETF Trading Diary model portfolio since last September, when the base pattern started to mature. Looking at the weekly relative strength chart of the two indices, the powerful two-year base pattern in the DIA/IWM spread has accelerated from its breakou level of 1.6400 to a high today of 1.7775 (so far), which is nearing my secondary target price of 1.8200. Although this upmove in the spread has a long way to go on the upside, my hourly work is warning me to expect a pullback from the 1.78-1.80 area into the 1.7200 support zone prior to the next upleg. Unless, of course, the markets go into a "freefall type of event," in which case the spread should continue to blow out to the upside towards 2.00.



Mike Paulenoff is a 26-year veteran of the financial markets and author of MPTrader.com, a real-time diary of his technical chart analysis and trading alerts on all major markets. For more of Mike Paulenoff, sign up for a free 15-Day trial to his MPTrader Diary by clicking here.