Market status as viewed through the eyes of the Russell 2000

Remember the scene in the "Predator 2" follow on movie starring Danny Glover where the predator was trying to find the team that was tracking it but it was having trouble seeing them?  Yeah, you know - he kept on changing visual filters and visual processing algorithms until he finally saw the truth of the matter.

In other words, he viewed the same data from different points of view.  Well, I like to do the charting equivalent of that using the various indices.  Below is the current chart of the Russell 2000 which had supposedly begun a bear market back in March with a 20% dip into October.  It since retraced to within 30 points of its old high.  So right now, I think it has either peaked or just put in 1 of pink 5.  Nobody knows which it will be; herd's choice.  But it will have to decide quickly to either head up hard into wave 3 of 3 up OR down into 3 of 1 of the new bear.  It literally could go either way and the decision point is now.

I do not believe that the Russell 2000 can lead upwards if the DJIA, $COMPX, etc. are falling.  So we need to pay close attention to what happens next in the Russell because it will probably tell us where the others are going in the next 1-2 weeks.  Look at how the the down stroke from pink 5 (or 1/5 - we don't know which it will be yet) is 3 waves down which then turns into what could easily count as a horizontal triangle.  Folks, if that triangle breaks lower by as little as 2 points on Monday then it will signal 5 waves down.  And if it does that then it will mean that the new trend is confirmed.  Conversely, it could head up from here on the red path and gap up (or move up slowly) into 3 of 5.   Higher than 1178 pushes the odds toward the red path.

Perhaps it will help to zoom out and see the big picture.  The move up into march was a rising wedge and thus a 3rd.  Then we had a very clear 4th wave triangle (with massive % swings considering this is a whole index...) that concluded with a massive E wave throw under.  So now we are building wave 5.   1,2,3 and 4 are already printed.  The peak on Wed of this week was either pink 5 or it was 1 of 5.  If only 1 of 5, it is going to completely screw the shorts who are just stuck on a theme without considering all of the legal options afforded the markets by the EW principle.  At the same time, it will suck in every last retail long who was late to the Ponzi Party and now sees a "breakout" that they will see as the train leaving the station.  

I don't know which it will be but I must admit that it would probably screw the most people to go ahead and rally strongly into a slightly higher high than blue 3 in order to suck in more leverage. We should have some kind of answer to this question on Mon or Tue of next week.  Such a rally could last well into the holidays (a Santa Rally only to collapse at the start of 2015.  I'm not saying that it must play out like this but we cannot rule it out.  Thus, until we get clarity here I would hold off on options purchases and stick to trading TVIX where the spreads are low and the liquidity is high.