Russell2000 as a leading indicator!

[Mercury]

I guess Yellen opened her gob and the USD when into temporary insanity mode (Gold up, Commodities up, most USD FX pairs going against the USD) but Fed pronouncement moves have been short lived of late and I'm wondering if the Russell2000 might be leading the way?  This market is smaller cap than the S&P500 and has led the larger cap markets in moves of late.  The Russell jumped today before the others and is now in an interesting place in terms of resistance.

 

There has been a Triangle formation for a while, which was broken on 23 March and followed this up with a kiss back on the line.  Often you get 2 of these and we have just had the second at a junction with a downsloping tram and the Fib 62%.  It could go back up for a third at the 76% Fib but there is Neg Mom Div building and supporting RSI and Stochastic overbought signals as well.

 

If you want to trade the Russell then a Short at the line is a decent bet with stops above the 76% Fib.  If not track it to see if it gives us a sense for where the other indices may go.

 

Here is the chart:

 

[Mercury]

Wow!  Fast move but it made me realise that my line position was incorrect so here is the corrected one, at the 76% Fib this time.  I am Short at the Fib line.

 



[Guest Rich88]

Dow still holding resistance at 17620. Still time for a fall leading up to non farms?

[Mercury]

Double Top bounce off the 88% Fib with negative Momentum Divergence suggests a significant drop.

[Mercury]

Is the Russell2000 showing the way again?  Possible final leg up still to go but strong resistance around the 1115 mark.  The think red line shows previous support/resistance points.

 



[Guest Condor]

I was looking at R2000 as well ...last few months zoomed in...would you agree with support around 960? could fall back to there if it breaks down..



[Guest Condor]

revised pic a bit...added on Fib and guess what the support/resistance lines tie in with the magic numbers..revelation.

..and the up trend seems to have started from a double bottom



[Mercury]

Apologies Condor,

 

I neglected to post my Daily big picture chart, thanks for showing yours.  I'm not sure about support levels yet and of course if "the big one" hits it will blast through all support levels but we aren't there yet.  As with all the main indices there are still at lease 3 possible scenarios:

1. Bear market: now just completed major W1-2 retrace and turning into a W3 but this will trace out as a fairly chunky W1-2 retrace before the massive W3 tsunami hits (probably in the Summer some time as Rich88 suggested).
2. Bear market but with another final leg up to go (i.e. the current turn is a Wa now down to Wb before Wc rally).  For this to work Wb must be very deep and maybe your 960 support level comes into play for that?  This could go down to 76% Fib or beyond.  I haven't drawn the 76.4% Fib (**** infuriating that this is automatic!, 88.6% too),which is around 980 so close to your 960.
3. Bull market still intact: the movement we are in a a big A-B-C with the Wc concluding Feb 11/12.  If this is right then the rally up has been in a 1-3 of 5 and now we should get a W4 retrace (or of course W3 not yet concluded...)

I cannot tell yet which scenario is most likely and certainly the dovish noises from the Fed don't help the Bear case (which I believe to be the natural place for this market to be in if not for Central Bank interference in what is supposed to be a free market...).  Having said that the market has not been fully behind the Fed or other CBs of late, hence the sharp rally then fall backs we have been getting around FOMC and NFP time.  There are a lot off jitters out there, why?  Because the market is running too hot (CAPE levels are at or near all time highs, especially in the US), which is ironic as it is non US markets that are more Bearish in my view.

 

All we can do for now is trade what is in front of us and my analysis suggests to me that anyway you cut it a retrace of significance is on the cards.  We will have to read the tea leaves in that as it progresses to decide which scenario is in play and in all I would expect a significant rally back after the drop.  The best way to play this in my view is to be a swing trader, ride it down then reverse and make your assessment on the way back up as to whether the rally will run into all time highs or reverse into "The Big One".  Because another leg up in a W3 cannot be fully ruled out practice good money management using stops and max account risk rules.

 

Here is the Chart:  Let me know if you have any questions and especially comments that are contrary to my own assessment.

 



 

[Guest Condor]

Hi Mercury,  agree we seem to be at a turning point.  

Like your 1.2.3 layout of scenarios, i'm tempted to short the index with a stop just above 1115 perhaps for a fall to 1065-ish.

Pondering that at the moment, perhaps best to wait until open, it could move quickly if todays FTSE open is anything to go by.

In your 2.  It seems to me the 960-980 is going to become important, it has been in the past and will be in the future, albeit an intermediate point or points being relevant (1060? / 1035?) perhap before that happens (unless its a/the big one)

If a break up occurs then imagine 1160 becomes resistance level.

C.

[Mercury]

I had a Short near the turn but cashed in as I am expecting a retrace (1-2 or fresh highs I'm not sure, hence cashing in).  This does pay for my 2 shorts on Dow and S&P500 with stops above recent highs, a set up a particularly like to create (free bets basically and in this case a small over all profit).  I would probably have held if I could trade the Russell at a lower stake level (IG please note!)

 

I think it is wise to let it run and see if we get a turn before yesterdays highs or fresh highs and then consider the trade but I prefer the S&P and Dow as the risk on level is lower.  I chiefly use the Russell as a triangulation guide and lead indicator for the other markets and only trade it when I'm really, really, "certain" of a major trend change, which I'm not just now - hence the 3 scenarios.

[Guest Condor]

Yes I take your point on £25 a point minimum! - I'd be happier if it was considerably lower - yes the other indices offer a more doable way to express your position

[Mercury]

£50 minimum isn't it?  At lease on spreadbetting platform it is £50, unless you are getting preferential treatment, at which point I will throw my toys out of the pram :smileylol:

[Mercury]

Is this the small W1-2 turning point for the US markets?  Similar set up on others.  This is at a past congestion zone and downsloping daily chart tramline.

 



[Mercury]

Forgot to add: Again the Russell coule be leading the way here for the larger Caps and the DAx and FTSE remain more bearish.

[Mercury]

Hit higher than the retrace point I had earmarked but has turned no forming a double top with Neg Mom Div.  Interestingly the large Caps are dropping first this time with the Russell playing follow the leader...

[Guest Condor]

 could be 1/2 rate to me for a while as new account - i think i did hear that mentioned - not that i've traded on it yet wasn't confident enough and good job i didn't (with the benefit of hindsight)

[Mercury]

I haven't posted on the Russell2000 in a while but was looking at it recently to get a different view from the large Cap US markets.  I find the Russell is often a cleaner market than the large Cap in overall terms and often leads the others.  The recent turn was an exception where the Russell topped out later than the others but since then has raced down stronger than the large Caps.

 

I found the Weekly chart to be intriguing, the recent turn was bang on the weekly support/resistance tramline, a significant factor I feel.  There was strong Neg Mom Div at the June 2015 high but I can't yet rule out an A-B-C retrace to a long term Wave 4 (although this us not by lead scenario!).  Now we have a weekly chart Tramline break and Kiss back and if we get a strong move down and away from this tramline I will be even more leaning towards a NO new all time high scenario (or big Bear!).

 

The first Daily chart is a little indistinct but I'm really just showing the Red tramlines drawn off the recent turn and June 2015 high.  The parallel tram has a number of highly accurate prior pivots (circled), which is a sign of a strong tramline.  Therefore I think there is a good chance the we have seen a major turn.  Additionally there is good Neg Mom Div and Stochastic/RSI have moved out of over bought at the turn and are on their way down.  Once again I can't yet rule out the alternative bullish scenarios but they are becoming less and less attractive as time goes by.  This next move down and the subsequent move back up on the daily level will tell the tale I feel.  One to watch closely while making the most of the current bear move. (I have shown a close up off the Daily also to show the multiple scenarios and the possible end points for this bear move, 'm sure there are more than this.