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Applied Complexity Analysis: RTY

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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.

We are updating our RTY index note from February. At the time we suggested that if the RTY moved above 645 that the next Fibonacci resistance target would become operative at 656/658. From the January 24th lows, we have been patiently waiting for a 5 wave pattern to form that would indicate the short term pattern has completed, thereby aligning with a completed pattern off the August 2004 lows and the October 2002 lows, thus forming the best (and most bearish) risk/reward scenario in a number of years (not advice).

Certainly our patience has been tested over these last few weeks as this index has subdivided higher. Nevertheless, yesterday's price action was extremely important. By declining below the 639.84 level (the peak from February 16th), this index is signaling that the entire sequence off those January 24th lows is forming an ending diagonal - a terminal pattern that adds substantial weight to the idea that this index is set for a serious bearish decline very shortly.

The completion of this pattern would come with one more new peak above March 7th's highs of 647.64 (IWM $129.28) and toward the cluster of Fibonacci resistance we identified in our last note: 656/658 (IWM $130.50 to $131.10). If this takes place it will provide investors one of the best setups since the October 2002 lows based on our analysis.

We would be looking aggressively for weakness on such a move next week. If prices come under 619 (IWM $123) at anytime before a new peak, we would then conclude that the important peak we have been waiting for took place on March 7th. Therefore, it makes sense to await a move toward a new high to 656/658 as the ideal set up for weakness or a clean breakdown through 619 to do so. We remain confident in the longer term bearish interpretation of the RTY.

Please note: We are now able to offer our proprietary complexity model analysis on both stocks and/or stock indices as a daily service to institutional investors and a select number of individual investors. There are several different services available; each are provided on a monthly subscription basis and cover all U.S. indices and all U.S. stocks. Please contact us for details and rates.

No positions in stocks mentioned.

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