Last update: August 2021

As anyone who listens to the Trading Justice Podcast (you should) or follows me on Twitter (@mattjustice13) you know I have been bearish on the small and mid-cap index RUT for the better part of a couple of months now. The reason for this is actually quite simple, it is in a reversal pattern and underperforming the other major indexes quite substantially. There are six steps to a major reversal:

The 6 Steps to a major reversal

1. Slowing Momentum (See all major indexes right now)
2. Double Top
3. Double Bottom
4. Breaking of Support
5. Death Cross
6. Kiss of Death

The death cross and breaking of support can often occur very close together.

I want to take a closer look at the RUT to see two types of Death Crosses.

The first one occurs on the Daily chart and is when the 50 SMA moves under the 200 SMA. The RUT did this last week.

The second is the bigger of the two and is part of a major reversal and that should take place within the next month. This is when the 20 SMA crosses the 50 SMA downwards on a weekly chart.

The signs are always there for a market reversal. It’s like Vegas neon flashing lights saying “Market going down”.

Create a plan and execute the plan. Mine is simple: take 10% of the portfolio and long PUTS on IWM while I maintain status quo portfolio design on the rest. As more signs of the reversal come, I will add more position size to the IWM Long PUT.

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