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Tackle Today: Is The Rut Back?

February 17, 2021

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Is the RUT back?


If you have been watching the Russell 2000 index for the last couple of months you may have noticed it acting slightly different than it has typically acted in the past.  The RUT was the one index that traders could count on a lot of the time to either move slowly up or down or move more sideways than perhaps the NASDAQ.  For those who have been introduced to the Iron Condor trade typically the RUT was the vehicle of choice for this particular strategy. Of course, the RUT is not the only choice for an Iron Condor trade but its traits usually lent to a certain amount of success.  In the recent past this has not been the case, as a matter of fact it has become increasingly difficult to trade the Iron Condor on the RUT as it has been trending more that consolidating and this makes things tough for the condor traders. 

If we look at the last five trading sessions, we can see that the RUT has been moving almost completely sideways.  Does this mean the RUT is back to normal?  Let’s not be hasty here in making the assumption, if we look at the chart from a couple of weeks ago, we can see that the RUT went sideways for 9 sessions before dropping down to support and then exploding through resistance shortly after that.  So, we don’t really know if things are back to normal or whether this is just a pause before the next breakout?  It is wise to get a bigger data sample before deciding whether a candidate is good for any specific trade type and with the Iron Condor trade, I would want to see the consolidation come back and at least show a couple of retracements from both support and resistance thus creating a true neutral condition before entering a new trade.  

So, whether you are trading a neutral Iron Condor or perhaps an aggressive directional strategy like a Back Ratio spread you need to ensure you have a large enough data sample to establish the right trend and or pattern before entering a trade.  It is always wise to wait for confirmation before entering a new trade.


Chart of the Day

/RTY Daily Chart

The RUT index has been trending quite aggressively as of late which is somewhat unusual for this index at least judging by history.  We can see a short-term sideways movement but at this point it is uncertain whether it is ready to break out to the topside or move into a consolidation phase.

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