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Markets – Macro – Stocks – Charts – Alerts

Russell Unraveling?

roadThe Russell recouped all its early 2014 losses and went straight back up to previous highs as the rest of the market powered ahead to new highs. Yet it turned around as opposed to powering ahead. A few weeks ago I questioned whether the Russell chart was indeed the last bear chart outlining a potential 2011 repeat. As the Russell stormed past the right shoulder it rendered the pattern moot. Yet all the negative divergences I outlined then persist to this day and the index is much more stretched than before.

As QE is reduced month by month a fair question to ask might be what is to propel the Russell higher from here? Its compelling and attractive valuation?

Valuation

Now it may seem silly to discuss unraveling near all time highs, but the 1.4% pullback today is notable as it shows significant rejection of the previous highs. And while divergences haven’t mattered so far they can certainly come back to haunt the complacent in a hurry.

$RUT daily

So far all we have is a potential double top and, as long as the Russell stays within its box (see below) we may just range trade for a while. Any break of February lows though and various corrective scenarios open up. For now one can note that this recent re-test of highs came on a negative RSI divergence and a very weak MACD divergence:

$RUT monthly

Taking this in context with the charts I outlined this weekend a rather powerful case for a sizable pullback is shaping up. But my view is clearly not the consensus view:

Consensus

We shall see.

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