Russell - the big picture suggests that the correction is not over

Russell has been following the classic five wave up fractal started at the lows of March 2009.

Back in November 2018 I was convinced that it can make one more high before the strongest part of the rally in wave ( C ) of ( 3 ) tops out. However, the market proved me wrong and kept falling until the late December 2018. The depth of that decline killed my bullish scenario and confirmed that the top of a large wave ( 3 ) up was made in August 2018.

Now the most important question is could that drop into December 2018 low be all of the large corrective wave ( 4 ) down. That question is crucial because as soon as wave ( 4 ) down gets completed we should see a new rally to retest the top made in August 2018 in wave (A) of ( 5 ).

In a section about corrective waves of my video course we study so called “alternation guidance” which¬† suggests that corrective waves ( 2 ) down and ( 4 ) down alternate in shape and depth. As you can see on the chart below, wave ( 2 ) came as a sharp drop and bottomed in October 2011. That pullback retraced 50% of the preceding rally in wave ( 1 ) up.

So far wave ( 4 ) down looks like an almost identical drop that retraced 41.4% of a rally in wave ( 3 ) up. The alternation guidance suggests we should rather get a more complex correction that may be shaped as (A) down, (B) up and finally wave (C) down. Then the drop into December low was the first leg of correction in wave (A) down and the rally we have been riding in January is a part of a corrective wave ( B ) up. In my video course I keep explaining that waves B are barely predictable. We can make some rough predictions that it may retrace 50%, 61.8% or 76.4% of the drop in wave ( A ) down. In addition we would like to get a completed a-B-C structure of that wave ( B ) up before we start planning to short it in order to benefit from the final decline in wave ( C ) of ( 4 ) down. So far the move up looks like wave A of ( B ) up. The next important resistance level is 1,507 (50% retracement of the drop in wave ( A ) down .

Russell-2000 index - weekly chart updated on 29 January 2019