Friday, May 27, 2016

RUT Russell 2000 Small Caps Daily and Weekly Charts

Over the last couple weeks, Keystone has been highlighting the moving average cluster on the daily. Three days ago, price, the 20-day MA, 50-day and 200-day were all at 1112-1118. A loser and a winner required crowning. The bulls win and the bears lose with the RUT rocketing higher on Tuesday.

The next contest is the bracket formed by the 20 and 50-week MA's. Two weeks ago, price tested the 200-week and 20-week MA support area and bounced. The overhead resistance was the 50-week MA at 1138, which is now support since price took it out to the upside. This level is extremely important. Since the bears got punched in the face with the outcome from the daily chart drama, bears have a last-ditch chance to stop the rally as long as the RUT stalls here and returns under the 50-week MA so watch 1138 closely.

The red lines show negatively-sloped indicators. This is not negative divergence since price has not yet made a new high. The only way a negative divergence can exist is while price makes a new high while the indicators slope negatively. The negative slopes, however, will introduce softness into price on the weekly basis. The MACD line is long and strong so any softness, say a week's worth, will result in price floating higher again to honor the bullish MACD. The RSI will likely become long and strong again when price comes back up which would further extend the move higher in price. The RUT will not roll over until the indicators print negative divergence.

Thus, say one week of down for the RUT, then back up again to current levels, then reassess. A guess would be that the RUT will top out 2 to 4 weeks ahead, say in early or mid June on the weekly basis. Interestingly, that is when the Fed rate decision, the Brexit referendum and Spanish elections all hit the fan.

A poke through 1150-1160 likely leads to 1180. The green expansion pattern is in play; also called a megaphone pattern (The mouthpiece and handle is added to create the illusion of a megaphone in the chart). If price does stall over the next month in this area and begins downward again, that is a long, long, long way down; the 700's and 800's. Watch the weekly chart and monitor the development of the neggie d. RUT 1138 is one of the most important numbers to watch through next week. 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.

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