$RUT could possibly lose 20-33% of its cap in the next few months and today I would like to share a little study on the index. I will cover the perspectives of the long term candles and the #ElliottWaves.
RUT formed a bearish Engulfing in Q3. It made a good attempt to cancel it in October-November, however, it looks like the index is loosing it. If it closes Q4 with a red candle, the chance of a multi-quarter decline will be over 60%.
Anything could happen with the monthly candle in the remaining two days. So far it looks very bearish and it’s better wait than speculate on possibilities.
The weekly formed a Tower Top, one of the strongest bearish reversal formations. The daily looks like in a free fall.
To summarize the candles, the odds are bearish with the chance of becoming very bearish at the end of November.
Based on multiple criteria that are supported by indicators, we can assume that RUT has completed it’s wave III off all time. If this hypothesis is accurate, than we can apply multiple Elliott’s concepts to forecast the wave IV.
- Length #1.
The most typical pullback for wave IV is 0.236-0.382 of wave III. This target is shown with the purple rectangle.
Target: $1640-1950, or 33-20% off the top.
- Length #2.
Waves IV often retrace to the area of wave 4 of the lower degree. Green rectangle. In our case it would be $1740-966. Yes, $966, the March 2020 low. In this case the loss would be up to 60%.
- Length #3.
Wave IV often finds its support at the level of the long term channel. In our case it would be the bold line that goes through the apex of wave II.
This concept would align with the projection #1.
- Shape & Time
As wave II was a flat that took two years to develop, wave IV could be very sharp, possibly a zigzag that would take just a few months to fully develop.
Taking all considerations together, we should probably looking into the area of intercept between the two rectangles with a possible shape shown by the dashed line.
One more possibility is a triangle for wave IV that might take a few years to develop.
Once wave IV is done, expect RUT to continue in wave V towards $2600-2800.
And one more point.
If we look at the current P/E ratio for RUT, which is 715.75 at WSJ as of today, perhaps a correction of 60% would not look improbable.
Good luck and please don’t forget to like and RT it if you find it useful!
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