Using the iShares Russell 2000 ETF (NYSE:IWM) as a proxy for the Russell 2000, my detailed Elliott Wave Principle (EWP) count and technical analyses suggest the index and ETF are closer to an interim top than a bottom.
In early- and late-January, the IWM reached both the upside and downside target zones for the smaller degree, minor-3, -4 waves (in green), respectively. The target zones I outline in my daily reports can be used to buy and sell and set appropriate stop levels if the price moves higher or lower. See figure 1 below.
Figure 1: Daily IWM candlestick chart, with detailed EWP count and technical indicators:
The ETF has now reached the next upside target zone in red, for the potential completion of (green) minor-5 of (red) intermediate-iii. Alternatively, the pending top is a one-degree lower 3rd wave. Time and the charts will tell, but it never hurts one’s portfolio to err on the side of caution and stick with the less bullish count until proven otherwise.
As you can see, the daily RSI5 indicator reached maximum overbought conditions yesterday. If history, i.e., the rally since the March 2020 low, is of any help, each time the RSI5 got this overbought, the index and ETF faced headwinds relatively soon. We can still see marginal higher prices for the completion of some micro-waves to around $230+, but it appears based on the EWP count and RSI5 set up, the downside risk is now more considerable than upside potential.
Waiting for the next larger pullback, which can be anywhere from 10-15% from current levels, seems, therefore, a much more sound and profitable strategy than chasing most likely minimal upside reward. A close below Monday’s open will confirm the correction is under way. I then anticipate the red dotted arrows to be the path over the next several weeks. Note: 4th waves are notoriously tricky, so that the pending correction may have several tricks up its sleeve.