Since the turn of the New Year, bears have been calling for an end to this unstoppable rally. Everyone, including myself, seemingly wanted to short a bounce in the market and we all got crushed. Can you blame us? Volatility often begets volatility and it seemed that a recession was right on time with the current bull market's length reaching record territory. A recession, however, was not in the cards and the market went on to form a perfect V-bottom. With the S&P at all-time highs, the only hope of the bears was that the small and mid-cap stocks were lagging the pack and signaled devastation to come. This, however, seems not to be the case anymore with the Russell 2000 breaking the 1590 level today.
With a Fed that seems hellbent on overstimulating the economy, an administration that feels it needs a higher stock market to be re-elected, a majority of economists calling for a recession and a ton of money on the sidelines or in bonds after December's crash, I believe conditions are ripe for a melt-up over the next year. The chart above shows an inverse head-and-shoulders (also on the S&P) that, if it were to play out classically, would target 1913 in the Russell! That's 20% higher than here!
Putting my long-term view aside (as I am mostly a short-term trader), I believe we can play this breakout in the Russell for a short-term, low-risk, high-reward trade.
Buy the Russell (via IWM, or RTY E-mini's) @ 1604 or lower Target 1: 1649 Target 2: 1700 Stop: 1583
@TradeWithAdam, Nice spotting that big H&S Adam. Hope it reaches it's full potential. I see on the hourly chart it's posted a small bull flag currently an ascending triangle so by rights it should be all positive from here. We'll see. Thanks for sharing.