Saturday, January 3, 2015

RUT Russell 2000 Monthly Chart Overbot Rising Wedge Negative Divergence; Traders Chasing 'January Effect' Seasonality

The RUT monthly chart negatively diverged last summer across all the indicators (red lines) with the July market top at 1213. The small caps were cooked at that point and a higher high in price was not expected again but the RUT prints a new all-time high at 1221.44. Interestingly, Keystone's 80/20 rule says 8's lead to 2's so the breach of 800 hinted that 1200's would occur and the breach of 1180 hinted that the 1220's would occur which has happened. With the price high at 1221, the indicators remain in neggie d across the board. In the very short term, over the last month, the bulls are squeezing out some upside juice to try and jump start the small caps (green lines). No doubt that traders are paying attention to seasonality with the January Effect where small cap stocks typically outperform from mid-December into and through much of January. In fact, the SPX, Dow and COMPQ log negative months for December but the RUT printed positive.

Traders are tripping over each other, one thinking they are smarter than the next, but all chasing the same seasonality factor which creates this near-term boost in the RUT. The MACD cross remains negative so bears are in charge as long as the cross remains bearish. The near-term juice may help keep the small caps elevated in January maybe into February but as shown by the SPX, Dow and Nasdaq monthly charts, the major indexes are topped out or topping out with a likely multi-year topping event in progress and to occur in Q1.

Of course there is one wild card and that is the ongoing global central banker collusion. Technical-wise, the six-year rally is over. Remember, the collapses from rising wedges can be quite dramatic. Watch the 10-month MA at 1160 and the 12-month MA at 1163. The two moving averages form a confluence of support at 1160-1163. If this level fails, extremely bad things will begin happening to the stock market.

The chart is likely identifying a significant multi-year top where the current highs will not be seen again for several years perhaps 2020 or later. Makes you rethink about all your long positions, doesn't it? If you enjoyed the long six-year rally, cashing out and simply letting your money sit idle for a few months is a very wise play. More adventurous traders can short the market moving forward. It will be interesting to see how the January Effect plays out over the next one to three weeks since everybody and his bro are long small caps playing the January Effect seasonality. Even the taxi cab driver told Keystone this morning to put all his money in small caps.

The chart is out of gas, however, if the central bankers pump, like the BOJ may pump to begin their year of trading on Monday, the bulls may be able to squeeze out a bit more upside juice. The main takeaway, however, is that the chart has peaked technically and it hints that even if the central banker global collusion continues, the 'emperor's will be exposed for not wearing any clothes' (Hans Christian Andersen).

The SPX, Dow and Nasdaq monthly charts indicate that a significant market top should occur now, in Q1. The stars are aligning for the market bears in Q1.

The ECB meets on 1/22/15 and the Fed is on 1/28/15 so a scenario may develop with weakness in January but the sick Keynesian central bankers save the day at the end of the month to provide a month or two more of buoyancy. The central banker schtick is getting old and perhaps in 2015 confidence will be lost in the Keynesian golden goose. Ignoring the central banker modern-day money-changers, the chart above says the bears will growl in 2015. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.