Last time I posted an article about the Russell 2000 I was bullish with a view of making new highs above 1213. Our strategy gave us a buy signal near 1140 when prices were reversing after a sharp downward move from 1213 to 1107.
The stop for bulls and the previous low at 1080 was not violated and that is why we preferred to enter long. I also mentioned in an earlier post that as long as the index was above the upward sloping trend line, the Ichimoku cloud in the 2 hour chart I would remain long. This changed around 1170 where we exited our long position as the sell signal implied the start of a downward correction.
The first part of the downward correction reached the 38% retracement and the lower end of the Ichimoku cloud. The upward bounce did not manage to make a higher high and this signaled more weakness that eventually pushed the index towards the 50% retracement. This downward correction, according to my wave analysis, is corrective as it consists of 3 waves and there is no impulsive downward wave. We could see this correction move even lower toward the 61.8% retracement, but I believe we are close to a trend reversal and the end of this downward correction.
Our strategy now is to wait for reversal signals around the 1135-45 price range and add to long positions when price breaks above the intermediate high at 1173. The price formation still looks bullish for the longer-term and I still see great bullish potential in this index as long as we hold above 1100. If 1100 is broken we could make a deeper correction.
On the weekly chart we can see the cloud support around 1140 and I believe that we will eventually manage not to break below it and not enter the Ichimoku cloud. Entering the Ichimoku cloud, thus moving below 1130, will decrease the chances of a trend reversal to new highs.
Disclosure: None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions.