RTY - this rally does not look corrective anymore but still needs a pullback from 1,600 resistance

I count the September 2018 top as the top of the wave ( 3 ) up, the strongest part off the rally started at the lows of 2009. The decline in Russell off September 2018 top into December 2018 bottom was structured as (A)-(B)-(C). That created two equal probability scenarios, bullish and bearish, and one more less probable scenario, a neutral one.

The first bullish scenario (click the chart below to enlarge) assumes the decline into December 2018 was all of the corrective wave ( 4 ) down. Under that bullish scenario we should get an impulsive looking rally targeting the previous top reached in September 2018. That would be the wave (A) of ( 5 ). Once it tops we should get a corrective wave ( B ) down retracing 61.8% – 76.4% of that rally. And finally, we should get a rally in wave (C) of ( 5 ) to a new all time high.

The bearish alternative scenario is what is expected by the vast majority of traders. For weeks consensus was that the decline into December 2018 low was only the first leg down in a corrective wave (A) of ( 4 ) down. And traders shorted this rally because they considered it as a temporary pullback in wave ( B ) up that would be followed by another strong decline in wave ( C ) down that would at least retest December 2018 lows and potentially make new lower low.

Finally, there is another, neutral scenario, where the current wave ( 4 ) down will be structured as a triangle. Under that scenario, the drop from Sep 2018 top into Dec 2018 bottom was only the first wave ( A ) down out of the five waves composing that corrective structure. The main feature of a corrective triangle is that every successive wave is shorter than the preceding one. Every wave is subdivided into three subwaves. Triangle is composed of five waves that bounce off two contracting trendlines. We will only be able to confirm if Russell plays a triangle after another decline that should either fail to reach the Dec 2018 low or should retest it.

Bullish scenario

Bearish scenario

Neutral scenario

If we look at the micro structure of the current rally it looks like an impulsive move up subdivided into five waves. That fits the bullish scenario where wave (A) of ( 5 ) may have an impulsive structure. But to confirm that we should get all five waves. So far this five wave fractal is not completed. There is a high risk that this rally will terminate at 1,640, at the level where wave ( iii ) should top. If that is an impulsive rally in wave ( A ) of ( 5 ), then after a pullback in wave ( 4 ) down we would see another rally in wave ( 5 ) up that may terminate around the September 2018 top.

But I saw many cases when waves B (the bearish scenario) successfully mimicked a structure of an impulsive wave up to the point of completion of the wave ( iii ). And instead of a temporary pullback in wave ( iv ) the price would reverse. I hate to bother you with so many alternatives. But I do not have any preference at this time as to what path will be chosen by the market. 

To talk about the short term prediction please look at the 2 hour chart below. The 1,600 level looks like a solid target for the top of wave iii of ( c ) of ( iii ) and I expect the price to get rejected there. From 1,600 we may see a pullback to 1,550 – 1,540 in wave iv of ( c ) of ( iii ) followed by another rally targeting 1,640.

RTY - 120 min chart updated on 24 February 2019 (the "Bullish scenario")