In our last update on RUT [see: Feb 13 Update] I noted that RUT had returned to test an important Fib level at 1392 and the top of a long-term channel after a very modest setback the first time around a few months earlier. The path forward was a little murky, so I laid out both sides of the ledger.
Head fake, or a sign of weakness? The next few days are very important, as RUT has an opportunity to break above the yellow channel that dates back over 20 years… At this point, support is up to 1330 and, after that, at 1296. If it can break 1400, it will leave the rising yellow channel in the rear view and won’t face overhead resistance until the purple 2.24 at 1493 and the 1.618 at 1514.09. The latest IH&S targets 1444, which is in the middle of nowhere.
As it turns out, I was fairly close on the targets — RUT found support at 1335 and rallied as high as 1452 — but, things aren’t all that much clearer.
RUT pushed above 1392 the very next day, but couldn’t make any headway. Thirteen sessions later, it was back below 1392, tumbling 5.6% to make new lows.It mounted another effort in late April. Again, the rally failed and it fell 5.2% (but, to higher lows.) More failed rallies followed in June and July, with the last producing a 7% decline. Every time RUT rallied, it produced a higher high. And, every time it slid, it produced a higher low — except the last. The Aug 18 low was slightly lower than the May 18 low.
It might not matter, but that decline also represented a breakdown of the rising white channel which had been guiding prices higher since Feb 11, 2016 (yep, the day oil bottomed) and also produced a rare drop through the SMA200.
The SMA200 was since recovered, but RUT has now reached a key Fib retracement of the latest drop and is…drum roll please…back at the top of the rising yellow channel. At the risk of repeating myself: “head fake, or a sign of weakness?”
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