The day Russia invaded Ukraine, a measure of the US stock market, the Russell 2000 (ticker: RUT) fell to a new 14-month low. Prior to the invasion, RUT was already down 20% from its high. An invasion would certainly add this chaos and send RUT even lower.
With the benefit of hindsight, we can see that beginning February 24, the day AFTER the invasion, Russell 2000 did not fall further. In fact, Russell 2000 began a rally reaching as high as 12%. What gives?
News is a poor indicator of what can happen next in the market. Studying the price action via Elliott Wave provides a better analysis.
What is the current Elliott wave for Russell 2000?
It appears that RUT has completed the minimum waves for a corrective rally. From the November 8, 2021 high, RUT fell in a five-wave impulse to the February 24 low. This is a new five-wave impulse that suggests the direction of the larger trend is down and that rallies will likely prove temporary.
When a five-wave impulse completes, prices typically retrace to the fourth wave of the impulse. In this case, wave ((iv)) sits near $2105. Earlier this week, RUT rallied to $2138.
Additionally, the rally appeared in three waves, an a-b-c zigzag pattern.
Therefore, Russell 2000 is at risk of an immediate decline that reaches $1986 and possibly washes out to significantly lower levels near $1643 and possibly $1400.
There is a chance that this bullish zigzag pattern is the first of two Elliott wave zigzags. If that is the case, then this bearish scenario is temporarily delayed and RUT may rally up to $2137-$2226 before washing out to below $1900.
Learn to read the waves with Elliot wave
In our Spotting Trends and Surfing Waves with Elliott Wave course, we teach you how to stop relying on news and read the market and its waves correctly. This will cut out frustration and help provide you with more consistent trading.
Learn more about our Elliott wave course.
You might also be interested in…