Founding Publisher
January 07, 2019
Market Data Research Publication - MenotomyResearch.com

YE 2018 - Russell 2000 Outlook

Russell 2000 [$RUT] Weekly Chart – 14-Period RSI

Well-Defined Trend Channel Breakdown, Momentum Measure Falls to Lowest Point of Primary Bull Trend

Momentum has faded fast, with RSI readings falling 50 points peak-to-trough in 2018. From the high-end of the range at 74-to-24, the lowest point since 2009 (not pictured) also known as the ‘Generational Bottom’ following The 2008 Financial Crisis. The current reversal is pulling up against accelerated trendlines and attempting to gain momentum following two failures to regain 40 [RSI] (Arrows above) The chart below identifies a potential long-term support level (Dotted line below) represented by the June 2015 record high of 1,296. The current downtrend tested that level, falling to a December pivot low of 1,267 before reversing higher by 9%. In that time, the 50-week MA has rolled over and turned negative, beginning to parallel falling resistance from 1,740 record high level. After peaking above 1,600 in November, the MA line has declined for five consecutive weeks

Russell 2000 [$RUT] Weekly Chart – 50 Week Moving Average

Slope of MA Line Turns Negative, Declines for Consecutive Weeks for First Time Since 2016

 

Russell 2000 [$RUT] Daily Chart – Candles

December Sell-off Breaks Support at 1,450 Level, Generating Series of Lower Lows for YE 2018

The YE 2018 reversal breaks a series of accelerated trendlines which formed in December as the decline intensified, next in the series of falling resistance represents the entire Q4 downtrend from the 1,700 level and the final trendline falls from the record high that closed the month of August. The chart below demonstrates the severity of the decline, as price action remained well below the 20-day Moving Average (Teal line) from the second day of trading in December through the New Year. Implied Volatility nearly doubled during that time, spiking from 19-to-36 month-to-date before Christmas. However, since that time IV has retuned to the mid-20’s as markets stabilize. Reversing the recent downtrend will involve regaining the two aforementioned MA lines.

Russell 2000 [$RUT] Daily Chart – Implied Volatility / Bollinger Bands ®

Implied Volatility Rises to New Cycle High: 20-Day Average IV Holding Above 20 Since Late October

 

CBOE Russell 2000 Volatility [$RVX] Hourly Chart w/ 20-Bar MA

Small Cap Stock Volatility Holds Above 20 Level on a Closing Basis, Since Early October

Following an historic period of low stock volatility the previous year, 2018 produced the first and only 10 print on the Russell 2000 CBOE Volatility Index, representing the record [intra-day] low. After spending six months at or below the 20 level, IV doubled on a closing basis, spiking from 15-to-30 during the month of October. Increasing volatility persisted throughout the quarter, with IV peaking at 36, generating consecutive closing values above 30 for the first time since August 2015. The chart below demonstrates the price action on the underlying index, which is expected to meet resistance near the 1,450 level (Parallel dotted lines below) based on the concept of former support becoming future resistance and vice versa  Expect trading to remain erratic until prevailing trend direction becomes more clear, perhaps following a breakaway from consolidation.

Russell 2000 [$RUT] Hourly Chart – OHLC

Christmas Marks Reversal from 2018 Pivot Low, Returning 9% in Seven Trading Sessions 

Russell 2000 [$RUT] Weekly Chart
14
-
Period RSI
Well
-
Defined Trend Channel Break
d
own
,
Momentum Measure Fall
s to Lowest Point
of
Primary
Bull Trend
Momentum
has faded
fast
, with RSI readings falling
5
0 points
peak
-
to
-
trough
in 2018. From
the high
-
end of
the
range at 74
-
to
-
24,
the l
owest p
oint
since 2009
(not pictured)
also known as the
Generational Bottom
following
T
he
20
08 Financial Crisis
.
The current reversal
is
pulling up against
accel
erat
ed trendline
s and attempting to
gain momentum
following two
failures to re
gain
40
[RSI] (
Arrows above)
The chart below
identifies a
potential
long
-
term support
level
(
D
o
tted line below)
represented by the
June 2015 record high of 1,296. The current
downtrend
tested
that leve
l
, falling to a
December
pivot low of 1,267
before
reversing higher by
9%
.
In that
time,
the
50
-
wee
k
MA
h
as rolled ov
er and turned negative,
beginning
to parallel
falling resistance from
1,740
record
high level
.
After peaking
above 1,600 in
November
,
the MA line
has
declined for
five consecutive weeks
Russell 2000 [$RUT] Weekly Chart
50 Week Moving Average
Slope of
MA Line
Turns
Neg
ative
, Declines for
Consecutive Weeks for First Time Since 2016
Russell 2000 [$RUT] Daily Chart
Candles
December
Sell
-
off Break
s
Support
at 1,450 Level
,
Generat
ing
Series of
Lower
Low
s
for
YE
2018
The
YE 2018 reversal br
eaks a series of accelerated trendlines which
formed
in December
as the decli
ne
in
tensified
,
next in the series of falling resistance represents
the
entire Q4 downtrend from the 1,700 level
and
the final
trendline
falls from the
record high
that
closed
the month of August.
The chart below demonstrates the
severity of the decline
, as
pric
e action remained well below the 20
-
d
ay Moving Aver
age (
Teal line
)
from the
second
day of trading in December through the New Year.
Implied Volatility nearly doubled
during that time,
spiking
from
19
-
to
-
36
m
onth
-
to
-
date
b
efore Chri
stmas
. However,
since that time
IV has
retuned to the mid
-
20
s
as
markets
stabilize
. Reversing the recent downtrend will
involve
regaining the
two
afor
emention
ed
MA lines
.
Russell 2000 [$RUT] Daily Chart
Implied Volatility
/
Bollinger Bands ®
Implied Volatility Ris
es to New Cycle High
:
20
-
D
ay
Average IV
Ho
lding
Above
20
Since
Late
October
CBOE Russell 2000 Volatility [$RVX] Hourly Chart w/ 20
-
Bar MA
Sm
all Cap
Stock Volatility
H
olds Above
20
Level
on a
Closing Basis
,
Since
Early
October
Following an
historic
period
of low
stock
volatility
the previous year, 2018
produced
the first
and only
10
print
on the
Russell 2000 CBOE Volatility
Index
,
representing the record
[
intra
-
day
]
low.
After spending
six m
onths
at or below the 20 level
,
IV
doubled
on a closing basis
, spiking from 15
-
to
-
30
during the month of
October.
Increasing volatility persisted throughout
the
quarter,
with IV peakin
g at 36
,
generating
consecutive
closin
g
values above 30 for the firs
t time since Augus
t 2015.
The chart below demonstrates
the price action on the
underlying index
,
which
is expected to
meet resistance
near
the 1,450 level
(
P
arallel
dotted lines
below
)
based on
the concept of forme
r
support becoming future resistance
and vice versa
Expect trading
to remain
erratic
until
prevailing
trend direction becomes
more
clear
, perhaps
following
a breakaway from consolidation.
Russell 2000 [$RUT] Hourly Chart
OHLC
Christ
mas Mark
s
Reversal from
2018 Pivot
Low
, Returning 9
%
in Seven
Trading
Sessions
Next
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