Russell 2000 – Monthly Review

CANDLES

Russell 2000 formed a tricky monthly candle in January. On one hand, it may represent a negation of the prior Gravestone doji, though it is common for Gravestone patterns to be followed by an attempt to cancel them. On the other hand, the candle’s long upper shadow leaves room for it to evolve into a bearish Hammer. February’s candle will likely provide clarity, but that resolution may take the entire month.

The 10D candle (not shown) still has a chance to complete as a bullish continuation, although the odds currently look roughly balanced. The real concern emerges on the weekly frame and below. The weekly printed a Bearish Engulfing, the 2D confirmed a reversal, and the daily formed a strong bearish continuation while losing the 8 and 20 EMA supports. For now, the broader trends remain bullish, and the pullback could still be classified as consolidation, but technical support for the bulls is clearly weakening.

Overall, Russell carries higher odds for a bearish start to February. If the early weakness is confirmed by next week’s weekly close, the discussion would shift toward a much larger corrective risk.

ELLIOTT WAVES

Another major misalignment comes from the Elliott Wave structure, particularly between the index itself and its tracking ETF, IWM. Normally, these instruments are remarkably precise at major turning points, a trait that also applies across other U.S. indices.

On Friday, IWM recorded a clear overlap of major waves, while RUT did not. Given the typical accuracy of this relationship, it is likely only a matter of time before RUT follows suit and also records a pivotal overlap. If that happens, it would invalidate the potential impulsive wave to the upside, much like IWM has already done. The chart below illustrates this concern.

Mid Term

After an event like this—a potential wave overlap—I place the green count on the back burner. At this stage, the red and blue scenarios carry the highest probabilities.

Red: An extended running flat for wave 2. This scenario aligns well with the structures discussed in the Nasdaq monthly review and would be the least damaging outcome on the larger time frames.

Blue: The index pushes to a new all-time high and completes an Ending Diagonal, potentially the final wave of the impulse that began in April 2025. This would likely be followed by a sharp reversal toward the November lows, and possibly lower.

Given the current bearish pressure across short- and mid-term frames from both candlestick and technical perspectives, the red count is primary for now. The key uncertainty is how the overlap resolves on the index and what that implies structurally. On the micro level, IWM has already completed an impulsive move down. The next step is to see whether there is meaningful follow-through. Until that uncertainty clears, discussing larger scenarios has limited value, as they may change materially based on the outcome.

Summary:

Russell spent most of January rallying, but the sharp drawdown in the final week changed the picture materially. The decline inflicted notable technical damage across several time frames, reaching up to the weekly, and raised serious questions about the integrity of the larger structures. The pullback was deep enough to undermine potential impulsive wave counts at a major degree, shifting the focus from continuation to risk management.

While index-tracking instruments are not yet fully aligned, the divergence itself is meaningful and warrants close attention. Combined with growing bearish pressure on short- and mid-term frames, the setup suggests that Russell may be entering a more vulnerable phase. Until the structure resolves and alignment improves, it is prudent to stay cautious and be prepared for less favorable outcomes.