In our last update [see: Sep 2, 2016 Update on RUT] I noted that the index was approaching a key Fib level that should produce a sizeable drop to backtest an important channel.

…with the .886 within a few points, we’ll find out.  We should get a pullback at 1255.77 that would start by backtesting the broken purple channel…If it happens, the purple channel top [1174] will likely hold.

RUT went on to test 1255 on Sep 7 and again on Sep 22 before reversing. Because the 2nd attempt to break out delayed the reversal, the channel backtest produced a slightly greater drop: an 8% drop to 1156 rather than the 1174 I originally forecast.

As expected, the channel top held.  RUT has since rebounded by 10.2% and is approaching new highs.  What’s next for this volatile index?

continued for members…

Note that the rising white channel from Feb 11 finally broke down in mid-October, allowing RUT to backtest the falling purple channel at the purple .618 on Nov 3.  Like SPX, it came close but failed to tag its SMA200 before racing higher into and after the election.  It has now reentered the broken white channel (this used to be taboo) and pushed above the purple .886.  This is a very bullish move — much like other indices.  It remains to be seen whether the ramp will continue to new highs or go down in flames.

But, given that it’s Friday, and RUT is now only 14 points short of new all-time highs — we have another good argument for a gap to new highs on Monday.

Stay tuned.