Technical Analysis is Suggesting that the Russell 2000 Index (RUT) is Very Near a Significant Top. Combined Elliott Wave and Hurst Cycle Analysis of the Russell 2000 Index (RUT) by Sid from ElliottWavePredictions.com. Click on the charts to enlarge.
When examining the Russell 2000 index since 1998 on a monthly (semi-log) chart (shown below), a large, overlapping, expanding structure is apparent. One interpretation of that upward movement is that an expanding ending diagonal has been underway in the Russell since 1998. In an expanding ending diagonal, each numbered wave (12345) must count internally as an ABC (5-3-5) zigzag. As you can see, all of the internal wave structures since 1998 count nicely as zigzags. Also, wave 3 must be longer than 1, 4 longer than 2, and 5 longer than 3. All of those requirements have been met. Note how wave 5 of the diagonal has slightly overthrown the trend-line extending from the extremes of waves 1 and 3 of the diagonal. This suggests that the bull market in small caps is quite mature.
Moving on to the weekly chart (below), the burgundy (Primary degree) ABC up from the March 2009 low is shown. In recent weeks, the Russell 2000 (ETF equivalent: IWM) reached an important Fibonacci price target at 1254.43, where burgundy (Primary degree) wave C equaled burgundy wave A times 1.618. This is typically about as long as a wave C can be in relationship to wave A in a zigzag. So once again, this supports the idea that the bull market in the Russell appears to be nearing an end. Since hitting that large degree Fibonacci target on March 18, the Russell has had a very difficult time staying even slightly above it. Also notice that a large MACD weekly divergence is already “in”.
Then, as the daily chart shows (below), up from the October 15 low, I’m expecting a black wave 5 to complete the bull market. Within black wave 5, there needs to be five blue (minor degree) waves. So far, I am counting blue waves 1, 2, 3 and 4 complete. Importantly, the very weak and hesitant wave 3 (blue) was shorter than wave 1 blue was. This means that wave 5 blue must not be longer than wave 3 blue was. This gives us a maximum top in the Russell of 1355.12. The only black (intermediate degree) Fibonacci price target below that level is at 1286.66, where wave 5 black will equal wave 1 black, and also where wave 5 black will equal the net traveled of waves 1 through 3 black.
Notice the 40-week cycle trough due now in about early August. Quite soon, price should be drawn strongly down into that fairly large cycle trough. As of today, an organic Hurst cycle analysis performed by Sentient Trader software indicates that the only small-degree Hurst cycle yet to crest before price falls into the impending 40-week cycle trough is the 40-day cycle crest, currently due between June 22 and June 30.
Finally, a look at the 240-minute chart (below) indicates that upward movement from the end of blue wave 4 (on May 6) is choppy and overlapping. I am therefore counting the upward movement from May 6 as an ending expanding diagonal, likely incomplete. Waves 1, 2, 3 and 4 pink within the diagonal appear to be finished, so only pink (minute degree) wave 5 is needed to complete upward movement. While the top may have occurred yesterday, if an ending expanding diagonal is underway from the May 6 low, and waves 1,2,3 and 4 pink are “in”, wave 5 pink must reach at least 1276.15, and it hasn’t done that yet. Any movement below 1218.37 would strongly suggest that a significant top is “in” on the Russell, in my opinion.
By the way, have you seen my latest educational video? Its a FREE 6-minute video example of how I combine Hurst Cycle Analysis with Elliott Wave Analysis.
As always, there are other important wave counts that may suggest alternative outcomes, especially when considering developments in items like the XLF, Dow Jones Transports, Utilities, Real Estate, Regional Banking, Biotech, the Mining Sector, Energy and more. My weekly “Counts” webinar really presents the entire picture, and that picture morphs a little from week to week. Want to stay on top of these markets? It takes persistent commitment.
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Sid Norris – ElliottWavePredictions.com