The Weekly Cycle in Russell that nailed the pandemic bottom in March 2020 and the top in November 2021

The Monkey Cycle Trader Indicator is a great analytical tool not only for day traders but even for long term investors. In this case study we will review how well it has been catching big turns in RTY futures.

In the first two introduction articles (here and here) I explained that publicly traded markets are driven by cycles. Those cycles reflect dynamics of ever-changing sentiment of market participants. My proprietary algo called the Monkey Cycle Trader Indicator does a great job of identifying those cycles and catching important turning points on all timeframes, from Monthly to 5 min charts.

Weekly Chart of RTY futures, 2018–2022

During the period from April 2018 to July 2020 RTY futures have been moving in a cyclical mode. That means that it kept bouncing in between cyclical support and resistance. Traders call that type of a market the range bound market.

On the chart you can see red horizontal lines. Those are cyclical resistance lines drawn by the Monkey Cycle Indicator in real time. When a new resistance is printed that means the algo detected signs of completion of an up cycle. If bulls fail to break over that level, a new down cycle starts and bears get into a driver’s seat pushing price down.

The green horizontal lines are levels of support that are drawn by the Monkey Cycle Indicator in real time. When a new support level is printed that means the algo detected signs of completion of a down cycle. If bears fail to break under a new level of support, a new up cycle starts, and bulls drive the price back up off the support that held.

Such periods of consolidations when the market keeps bouncing in some range always is followed by a trending mode.

Every trending mode starts from bulls pushing price over a new cyclical resistance or bears breaking under a cyclical support. Bears manage to break over a cyclical resistance in October 2020. Then bears tried to push it back under the resistance but failed. That bears’ failure is what triggers a new trending mode. And this is when the price starts an accelerated phase of a rally.

Weekly Chart of RTY futures, 2018–2022

As you can see, RTY rallied 700 points from November 2020 to Mar 2021. No rally can keep pushing price higher forever. There is always a point when no more bulls are left willing to buy stocks at new sky-high prices. When bulls get exhausted by multi-month rally bears step in and start pushing price back down in a corrective pullback.

Weekly Chart of RTY futures, 2018–2022

When price switches into a trending mode it launches a topping sequence that is composed of five stages:

Point 1. Price breaks out over a cyclical resistance.

Point 2. Price comes bac down to re-test the broken-resistance-turned-support.

Point 3. After bears’ failure at retest of the broken resistance bulls start an accelerated part of a new rally that pushes prices higher without any tradeable pullbacks. Price is moving up quickly in a run-away mode until it reaches a temporary top in point 3. In the Harmonic Elliott Wave theory that move is labelled as subwave C of wave 3 up. The classic Elliott Wave theory labels it as wave (iii) of 3, “the heart of the rally”.

Point 4. Very often bears find it impossible to produce a deep pullback after such a strong rally. The problem is that rally leaves behind many short sellers who need to cover shorts and many traders and investors missed the rally and the longer price hangs at new highs the more difficult for them becomes to fight temptation to go long in anticipation of continuation of that rally. That pullback normally finds support on a level much higher than the broken resistance (see the Point 1).

A pullback that follows a strong rally that makes a higher low over the broken resistance creates a great long setup. When the Monkey Cycle Indicator detects signs that bears cannot longer push prices lower it prints a new green horizontal line and the “Strong Buy” signal. The new green line tells traders that a down cycle that pushed priced down off the last high (see the Point 3) has either bottomed or about to bottom. That means that if bulls manage to defend that new support, a new up cycle will follow.

If you happen to know the Elliott Wave theory consider Point 4 as the bottom of wave 4 or (iv) of 3.

Point 5. That shallow pullback is normally followed by a strong rally pushing price back to the recent highs at the point 3. When the algo detects topping signs it prints a new cyclical resistance with the trading signal to exit the long position “Sell Long”.

As you can see the indicator nailed the top made by RTY in Nov 2021!

Before we start talking about the current analysis, I want to show you one more chart on a daily timeframe.

If you look at the Point 3 on the weekly RTY chart above, you will not see any topping signal. RTY topped around 2,352 in the first half of March 2021.

However, if you switch to the daily timeframe not only you will see the very same topping sequence but also you will get a topping “Sell Long” signal (the red label) that nailed the top made on the weekly chart shown above and marked with the point 3! A peak of the weekly cycle was confirmed with a topping signal generated on a daily timeframe. Again, the point 5 on the daily chart below is the point 3 on the weekly chart shown above.

Daily Chart of RTY futures, 2018–2022

Read next where S&P and Nasdaq may find support:

Now let’s review what cyclical analysis may tell us about the next move in RTY in upcoming days.

RTY has been pushed down by a monthly down cycle. But it has tagged the first support, 21 EMA on monthly. This is where stocks normally produce a corrective bounce before breaking under support on a lower timeframe and starting a new accelerated move down.

Monthly and Weekly charts of RTY futures, 2020- 2022

Note that on a weekly chart RTY dropped under a cyclical support but has come back up to that support-turned-resistance level. That 2,050 is the key level now for bulls. If they manage to push RTY over that resistance we may get a bigger pullback before bears will be able to break under the key support at 2,010.

If we zoom-in to lower timeframes we will see why that 2,020 — 2,010 level is so important tonight:

240 min, 120 min and 60 min charts of RTY futures, 9–13 Feb 2022

RTY is sitting on a quadruple support. That means that there four cycles on 30 min, 60 min, 120 min and 240 min that all point up providing support for the market tonight.

In conclusion:

If bears manage to break under 2,010 they will turn the market in a down trending mode driven down by the strongest down cycle on Monthly timeframe. That would be “short every pullback” type of a move down.

But until that happens bears may wait until at least up cycles on 60 min and 30 min get completed tonight and new down cycles start on those lower timeframes.

For bulls the most important resistance is 2,051. They need to push RTY over that level to confirm completion of a down cycle on weekly and start of a strong up cycle on weekly. That weekly up cycle would produce a bullish pullback that could last several days.

Read Next:

“S&P and Nasdaq: Has the Bulls’ Train Derailed?”

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Important Disclaimer

Neither the author nor the publisher of this article is registered as an investment adviser nor a broker/dealer with either the U. S. Securities & Exchange Commission or any state securities regulatory authority. Readers of this article are advised that all information presented here is solely for informational purposes, is not intended to be used as a personalized investment recommendation and is not attuned to any specific portfolio or to any user’s particular investment needs or objectives.



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