Powerful Sell Signal on Russell 2000?

Usually when markets are range bound for an extended period of time, a breakout is on the horizon and the

Stocks have been trading in a very narrow range despite making new all-time highs (some of the indices). Usually when markets are range bound for an extended period of time, a breakout is on the horizon and the big question is which way.

Since the daily chart did not provide me with the clues I was looking for, I went over to the higher multiple time frame of the weekly chart and decided to analyze the mini Russell 2000 as I feel it has been somewhat of a leading indicator for the overall stock market.

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What I see on the weekly mini Russell 2000 chart below is a major sell signal confirmed by two different methods I personally have confidence in. One of these is a proprietary indicator I developed, the other is Elliott Wave.

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What you see above is a sell signal in the form of the red diamond, which looks for extreme overbought with a potential for a reversal. This is followed by a completed 5th wave (Elliott Wave Theory). The way I studied EW, completion of confirmed 5th wave has a good potential for a retracement back to the previous major 4th wave. In this case we are looking at possible 1038, which was the low made Oct 2014.

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If you are primarily using futures, I would look to sell either on a bounce higher, possibly the 1235 area OR wait for a break below the psychological 1200 level. My preferred method for this set up is to look for vertical put bear spreads. Buy a put option close to the money and sell one that is out of the money.

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About Ilan Levy-Mayer

Ilan Levy-Mayer has been a commodities broker for over 16 years and holds an MBA in finance and marketing from the Hebrew University in Jerusalem. Ilan is currently the vice president and a senior futures broker overseeing Online Future Trading Platforms and Commodity Futures Trading at Cannon Trading Company.

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