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Chart Chatter: $RUT

Welcome to Chart Chatter where we discuss various technical charts we find of interest. We cover indices, signals and stocks on different timeframes highlighting different technical techniques we use over time. We’ll focus on key observations we find relevant which readers may find of use for their own trading.

We do not present these charts as trade set-ups in this forum, but rather for discussion purposes. Feel free to add your thoughts in the comment section.

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Some interesting things going on with $RUT.

Firstly on the long term chart we can note that $RUT keeps respecting its upper trend line resistance. $RUT has now tagged it 4 months in a row and rejected each time. Since the 2016 lows $RUT has developed a new supporting trend line which was last tagged during the early 2018 lows.

Most notable is the long term trend of volatility compression of $RUT’s underlying volatility index, the $RVX. All very clean:

The main message: $RUT has needed and continues to need volatility compression to make new highs. Both patterns in index and underlying volatility are in extremely large wedge patterns. These patterns will break at some point and the breaks are likely to be violent in nature when they occur.

On the daily chart we can also recognize wedge patterns on the shorter term time frame:

Here too we can confirm that volatility compression is required to drive prices higher. However the most recent highs have seen a divergence in volatility compression. No new lows on the volatility index were achieved, which could suggest a change in character. Also $RUT failed to tag the upper trend line when making the most recent highs. This could be suggestive of waning strength.

Also of note, we just saw a tag of the supporting trend line yesterday. The tag comes in context of a recent small bear flag that has broken to the downside.

Wedges don’t break until they do. As of now $RUT has avoided a break on either short or long term time frame, but these trend lines are key to watch as a break could signal a change in trend.


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