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