RUT: Long Term Head & Shoulders

The RUT has made unprecedented moves in the last few weeks, but when we pull out to some longer term charts we can see that there were some patterns forming to alert us to these drops.

On the 10 Year Monthly Chart, we can see that a Head and Shoulders Pattern has been forming for the last 3 years. Once we had a neckline we are able to project a price target should the price break below the neckline. Our target based on this chart was at 525. Since this pattern took almost 3 years to form, under normal circumstances we might expect it to take that long to hit the price target... 2 to 3 years. Obviously these are not normal times and we have hit and exceeded the target in 7 trading days.

The RVX has hit new ALL TIME Highs and closed at 65.52. The VIX closed also closed at an ALL TIME High of 63.92.

The trend is down, and despite the record high volatility indices there is still no evidence of a bottom. History shows that high volatility levels eventually give way to lower ones and those rallies start to develop, but this is no time to be a hero. Best to trade what the market is showing and to be nibble as can be if trading in this environment. It's also 100% okay to be sitting on the sidelines in CASH right now!

The one thing to keep in mind is that volatility at these levels works both ways, and there are likely to be some very large and fast intraday rallies to catch the shorts off guard. On the daily charts you can also see that historically there can be sustained rallies after moves to go "straight down" like this one.

RUT 10 Year Monthly Chart: Head & Shoulders Pattern Completed