Friday, June 16, 2017

SPX and RUT: A Bit More Hope for Bears?

I've been staring at the RUT chart on and off for the past few months, and a couple months ago, I suggested the possibility of an ending diagonal -- but the pattern hasn't quite shaken out properly for the version of the diagonal that I first proposed.  The key issue with this pattern is that it seems to be a series of 3-wave rallies, which is proper for a diagonal, and last night it dawned on me that there's another way to look at this structure that fits the rules for an ending diagonal terminal pattern (below):

The nice thing about this structure is that it also provides an invalidation level at 1442 -- sustained trade north of that level would at least provide the option of a strong rally.  Frankly, that's one of the reasons I suspect this is a diagonal -- because if this is a bull warm-up pattern, then it would be outrageously bullish, and I have a hard time seeing that type of moon-shot from the market's current position. 

This is somewhat akin to the way I felt back in 2015 shortly before the flash-crash -- when many technicians were suggesting a nested third wave rally was about to launch to the moon, but I was calling a top.  We're in a similar position now.

If we compare the RUT pattern above with the preferred count I've been publishing in BKX, then we may have two markets well-aligned for a bearish move:

In conclusion, my instinct for a while has been that the market is undergoing a topping process, and with this fresh look at RUT, there finally seems to be some confirmation from the charts.  If RUT breaks out solidly over 1442, then something more bullish may be afoot, but until then, I will continue to lean bearish.  Trade safe.

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