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Oct 31, 2009 – Russel Corrective Triangles and Predictive Powers

Posted by pugsma on October 31, 2009

Here’s another good at the Russel-2000 small cap index.  This index contains many of the more volatile small to mid-camp stocks.  But it’s also is a much more broad indicator of market direction than the SP-500.  If you look at the period from mid-May through early July you can see the Russel mapped out a 5 wave (a-b-c-d-e) corrective triangle.  This correction began in mid-May, well before the SP-500 started to correct in mid-June.  So basically the Russel signaled the up coming weakness in the SP-500.

Now look at the late-Sept area on the Russel-2000.  Again the Russel signals weakness starting around Sept 23rd well ahead of the SP-500 that peaked at 1101 on Oct 21st.  The Russel is again mapping put an a-b-c of the corrective triangle as the SP-500 is making it first a-leg of an a-b-c corrective.  So as the the SP-500 completes is b-c, the Russel should comple it’s d-e.

So I’m watching the Russel as the leading indicator for the SP-500 index.  It seems to be leading by about 1-month in time. Assuming the Russel follows through with the d-e legs of it’s triangle the SP-500 should complete it’s b-c of it’s corrective late in November.  However, if we see the Russel completely break down, then it would be time to become more bearish on the SP-500 future.

Finally, I want to thank “Mark” from the Good Vibes CIL Traders Lounge for tipping me off on using the Russel as a leading indicator.  Mark has been mapping the Russel-2000 moves from some 20+ years.

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