The small cap Russell 2000 (RUT) index is reaching some fairly significant technical milestones which might be indicating that a short to intermediate term top is perhaps near.
RUT finished Friday at a 52 week high of 66
6.02.
Measured Move Targets
This chart published by the Disqus user Joe8888 shows the measured move on the RUT quite well.
The first one is a measured move A=C pattern off the March Lows. The RUT hit a low on March 10 at 342.59. The early June peak was 535.86, which marked the start of the pull back to the July’s lows of 473.54. A measured wave C move from the July’s lows has a target of 666.81.
Another target is a measured move from the highs of Jan 2009 at 519, which marked the peak of the rally from the Dec 2008 lows of 371.30, a move of 147.70 points. The target for that move is 666.70.
In the shorter term, a measured move A=C pattern off the February lows (580.49) to the Feb high (633.55) measured from the end of February lows at 620.61, give a target of 673.67.
DeMark Indicators
The RUT has completed Bar 12 of the Daily TD Combo countdown using the strict rules; it has already completed bar 13 using the relaxed rules.
Since the February lows, the RUT is on Bar 5 of the second set of TD Sequential Sell Setup, and bar 7 of the TD Sequential Countdown.
B arring
a sell-off which results in the RUT closing below the 654 level by Wednesday, the TD Sequential Sell Setup will reach the 8th bar on Wednesday.
A higher close on Monday will also fulfill the requirements of the TD Combo Sell count reaching 13.
The Pre-Lehman Weekly DeMark TDST Support level for the RUT was at 681.85.
Near Term Expectations
The RUT is nearing its 200 Week SMA which currently stands at 671.44. It has rallied more than 15% since its intra-day low of February 6.
It is now ripe for a pullback.
The bullish burst from last week will likely
result in some follow-through action which may take the RUT higher, especially if the S&P 500 ( SPX)
continues to make a move towards its January highs, early this week.
I expect a near term top to be hit by the middle of the week, where the RUT pull-backs a little and consolidates its gain. A 23% pullback of the move off
the February lows is very feasible and will likely put the RUT in the vicinity of its January highs.
A test of that level is likely.
Trading Opportunity
The obvious trade here is to put on bearish plays (outright puts, put spreads, outright index shorts) on the RUT via the futures (TF) or the ETF (IWM).
For those uncomfortable shorting a bullish tape, another trade to consider is to short the RUT against the SPX. The RUT has been outperforming the SPX since last December and the RUT:SPX closed at its highest weekly level since the start of the start of the great 2008 slide where large caps (led by financials started collapsing). If the market does consolidate near the Jan SPX highs, it is likely that the RUT will fall more.