#RUT today confirmed Double Top on the weekly chart. It took long 4 months to build and break this pattern downwards. The initial alert was issued on March 25 and below is the link to that post. Let’s evaluate the prospective targets from different angles.
The weekly candle (chart above) looks terrible. It’s a bearish Maribozu that signals further decline with very high probability. The candle also closed decisively below the support/neck line that was identified four months ago (refer to the link below).
The monthly candle (below) is not completed yet but its magnitude so far is very impressive. If it closes like this or lower, a Bearish Engulfing followed by at least one month of continued downfall is almost guaranteed.
When someone says EW is BS, I quietly smile. EW together with the Candles were the tools that helped me to forecast the downfall in March 2020, two months before the event, and the first chart I did it on was RUT. This is the exact chart dated Jan 4, 2020. I forecasted the decline to $1200-900 when RUT was $1600 and nobody in their wildest dreams was thinking about such disaster. In March 2020 RUT fell to $966.
I am using the same chart now to track #RUT and would like to explain some graphics on the chart.
- Green rectangle. Waves IV typically retrace 0.236-0.328 of the length of wave III. The purple Fibonacci levels show that retrace.
- Blue rectangle. Wave IV often find their support at the level of wave 4 of the smaller degree. The blue rectangle shows the area of possible support for the wave IV.
- The channel line (bold) that is baselined at the top of wave II is expected to work as a long term support for the wave IV.
- The minimal target – $1880 or 20% off the top of $2360.
- The most expected target area – $1760-1580 or up to 33% off the top.
This area is an intersection of the blue and green rectangles.
- The probability of retracing to $966 (March 2020 lows) or 60% off the top is also sizeable and should not be fully discounted.
The first two options have the highest odds.
Shape and Time:
Wave IV should be subdivided into three waves A-B-C. Their lengths and shapes are next to impossible to forecast such early in the correction. The same applies to the timing.
The next two weeks and the monthly closure on July 30 would determine the mid- and long-term projections for the correction that has likely started.
As RUT is often viewed as a harbinger for the other major indices, I would expect somewhat similar waves for SPX, NQ and DJI. I hope I can find enough time to do the studies on them. If you are interested, support this post with Retweet and Like on Twitter.
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