The last trading week in March has started slow, with financial market participants still digesting the recent events. Several banks failed in the United States, rivals acquired some, and things appear to have calmed down.
While many talk about a banking crisis that will spill over to other parts of the world, US stocks remain resilient. For example, despite terrible news, the S&P 500 is up two weeks in a row. Also, the Nasdaq 100 index trades at a seven-month high.
Moreover, US stocks are the most hated asset, while cash is the most loved asset. Whenever this happens, it is a great time to buy equities, at least from a contrarian perspective.
Russell 2000 forms a bullish triangle
Russell 2000 is a small-cap US stock market index. It comprises the smallest 2000 stocks in the Russell 3000 index and recently formed a bullish triangular pattern.
Elliott Waves traders know the pattern as a double combination. It is formed out of two corrections connected by an intervening wave.
Almost always, a triangle forms at the end of the pattern. In this case, the e-wave is in the makings and the focus shifts to the b-d trendline. If the price action bounces from the current area and heads towards the b-d trendline, then the triangle’s measured move hints at more upside.
However, there is one catch. The price action must reach the b-d trendline in less or the same time it took the e-wave to form. Should this condition be fulfilled, it confirms the triangular pattern and, implicitly, the double combination.
To sum up, a move above 2,000, respecting the time rule mentioned above, implies new highs for the Russell 2000 index. Time to be a contrarian in the face of adversity?
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