Advanced Technical Analysis - RTY
Note: the following analysis is formulated as an assimilation of Fibonacci, DeMark, Elliott Wave and other technical indicators. It is offered as education and not intended as advice in any way.
The Russell 2000 index (RTY) is at a critical juncture technically speaking. The RTY may be completing both a 5th wave up from the lows in October 2002 and a 5th wave up from the August 13th 2004 lows (and truth be told may also be completing a 5th wave up from its 1979 low as well).
Weekly, daily, and hourly DeMark trend exhaustion indicators have or are near registering, a confluence seen in the RTY only 3 times in the last 5 years: at the 2000 peaks, at the April 2002 peaks, and at the October 2002 lows. Weekly momentum is significantly diverged and the wave count, can be considered complete from the lows in October 2002. Of the "5" wave impulsive move up from the 2002 lows, one can see the existence of clear parallel channel trendlines that have defined this move.
Note too the interesting Fibonacci relationships between each of the waves: wave III is equal to 3.67 (remarkably close to 3.618) times wave I, which means that wave III is 'extended'. In impulse waves where wave III is extended, oftentimes waves I and V are equal. In this case, that wave I, wave V equality would come at roughly RTY 656. The RTY peak yesterday was 125 basis points from this 'equality' target, which is close enough for Fibonacci relationships to suggest that a general failure of the small caps could begin at any time. And when taken in the context of the all-time record sentiment, the potentially completed wave pattern and the plethora of DeMark trend exhaustion indicators, you can see why we think the RTY is at an interesting juncture.
The real question that is difficult to answer at present is whether there is a complete "5" waves up from the August 13th 2004 lows. If so, then that would complete in turn the entire 5 waves up from the 2002 lows. Right now we can make both cases equally: (1) that there are "5" waves up from the August 2004 lows or (2) that one more down-up sequence is necessary, specifically down to 600-620 then back to 656 +/- in January.
Either way, the long side appears remarkably risky right here for this index (and by extension small caps in general). The conservative approach favors waiting for a "5" down on the hourly chart over the next several sessions before positioning for technical weakness; the more aggressive interpretation looks for weakness in the RT Y (the ETF is IWM) from current levels with a move above 660 (IWM $131.60) negating the near term bearish view and forcing us to stand aside.
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