What happens if the Russell 2000 breaks out?

In this post I provided a potential model for the Russell 2000 which suggests that early next week we will know whether there is another upstroke to the rally or whether it is over.  So, what do I see if it decides to count up 3/5, 4/5 and 5/5?

Well, since I created a post for SVXY recently, please review the model there.  that model shows it in a channel and indeed this is a valid model.  So far.  But other valid counts could play out and so I wanted to present another one to be watching for.  In short, instead of treating the waves as contained within a parallel channel, the wave might actually be oscillating between an expanding wedge (which is the engine of volatility folks...).  Should the Russell break out, SVXY will probably kiss the top rail as shown.  But the higher it goes, the harder the collapse spring will be wound down.  That's is just how it works with leverage and that is what the expanding wedge model is showing us.

Even after it bottoms into pink 5, will that in fact only be black 4???  After all, we have my friend the rising wedge peaking in July.  If my theory about those is right, we should have seen a 4th and then a 5th.  Of course, one could always argue that pink 2 was in fact a short stroke black 5.  But the move down from pink 2 to pink 3 is pretty clearly an a-b-c.

Bottom line is that volatility is the sign of any unstable system and our global economy is based on fake money that cannot possibly go on forever given the fucking scam that it is.  The currency wars between sovereigns will eventually get unmanageable and the world will either destroy itself fighting about it or do something new.  As we try to vilify them, and as they try to vilify us, keep in mind that there is only one true villain in all of this and that is the fraudulent global money supply which is formed of un-backed specie (fiat currency) and unbounded debt (fractional reserve banking).

If all this sounds too difficult and complex to trade, I submit that you are right if you are going by gut feel.  But if you use strawman/tin man/iron man models that you can set up and just watch to see if the market knocks them down or not, even if you keep re-entering the trade to the wrong side 3, 4  even 5 times until the big down turn begins, your cost basis for something like TVIX will get smaller and smaller AND the eventual destination will become a larger and larger percentage gain.  So either just ride out the volatility or sidestep the potential market thrusts like that modeled above and then be ready and not fearful when it is again time to buy.  At some point we are going to get the big collapse and those who have positioned themselves patiently (like we did with the first grind down to $2.50 on TVIX) will get the reward in a dramatic fashion.