RUT Russell 2000 Small Caps Monthly Chart; Overbot; Rising Wedge; Negative Divergence; Upper Band Violation; Price Extended

The monthly charts receive a new data point last Wednesday and the February candlestick is in progress. Houston, we have a problemmo. It is surprising how negative this chart is since the other monthly charts for the major indexes received a strong boost pointing at further buoyancy; but Keystone will have to take a look at them. The RUT chart is not well and considering that the monthly chart is a long-term period, the small caps are likely printing a multi-month and multi-year top currently.

The red rising wedge is ominous and extremely worrisome considering this is a monthly chart. In a worst case scenario, a drop to 700-900 is very much possible over the next couple of years. The RSI and stochastics are overbot and agreeable to a pull back. The red lines show universal neggie d across all indicators which was surprising to see. The indicators are saying that price is completely out of gas and topping out currently.

The upper band has been violated and the middle band, also the 20 MA, at 1396 is on the table for the weeks and few months ahead. Price is extended above the moving averages and needs a mean reversion lower.

The ADX is at 31. When the 2008-2009 crash was occurring, the ADX was showing that it was a strong trend lower in early 2009. That is when former Federal Reserve Chairman Bernanke stepped in to save the stock market and bailout the banks to protect the wealthy elite class in America. Thus, that strong downtrend in price quickly ended. As the small caps rally on the easy money from 2009 into the 2015 top, the ADX was showing that the upward trend in price was a strong trend in 2014 but it peterred out ahead of the spring 2015 top. Note that RUT price is way above the May 2015 highs but the trend is not as strong (ADX is lower).

Also of note is the MACD line. Remember n the SPX the MACD line took out the highs from 2014 a bullish development but the small caps have not. In addition, look at the MACD  line currently from January to February it is flat with price flat. If that MACD line rolls over to the downside this is likely the long-term top in the Russell 2000 small caps.

The chart is very straightforward. The overbot conditions, rising wedge and universal negative divergence should spank price down towards the 1396 area for the weeks and months ahead. You can develop a feel for things as it all plays out but one potential path ahead is to short the small caps on bounces going forward.

On the RUT weekly chart, price was spanked down by some negative divergence but the RSI made a high when price made a high in January so the RUT will likely want to come back up again after a week or three. That will likely set up a nice shorting opportunity. 

On the RUT daily, the neggie d spanked price lower and the indicators are weak and bleak  in the daily time frame. Stochastics are coming into oversold on the daily chart and price is beginning to violate the lower band. So RUT may find its sea legs in this 1510-1550 area and rally back up to 1580-1600 say a couple-three weeks out and then likely roll over with a serious long term downward bias ahead. 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.