The Case of The Russell 2000

• Posted by Greg Harmon
• on August 6th, 2013

The Russell 2000, $IWM, has been the leader, pulling the $SPY and $QQQ higher on its back. So there are many eyes on it seeking its wisdom and direction. What does it have to tell us? One view is that it has completed a AB=CD Pattern and is ready for a pullback. That can certainly happen. The Relative Strength Index (RSI) is nearing a technically overbought level and the Moving Average Convergence Divergence indicator (MACD) is slowly pulling back. But quite often these patterns extend to where CD = 127% of AB (illustrated below) or even 138.2% or 161.8%. If it confirms lower then go ahead and play the short. But until then it is in an uptrend. No reason to cut long exposure. Tighten your stop if you like. But remember as well that the technical view is a possible outcome, not a certainty. Never trade a pattern until it confirms.

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