By most accounts, it was another brutal week for the stock market, and for investors in small-cap stocks. Yes, the Russell 2000 (NYSE:IWM) eked out a meager 0.42% gain for the week, but in the process the index tumbled to the lowest point since October 2005, and is now down almost 25% from last year’s record peak. Toss in more economic bad news, bailouts of investment houses and record lows for the dollar, and it’s a bleak picture, right?

Ah, but here’s the beauty of technical analysis. Believe it or not, the Russell 2000 left a nifty little bullish reversal pattern on candlestick charts. The formation is known as a long-legged doji, and although it has a reputation of being much more powerful at highs versus lows, it is still a formidable pattern that offers a glimmer of hope for a sea of sad stock market sacks. The last time we profiled a long-legged doji formation on weekly charts was back in early October 2007, when I warned in this column that an ominous topping formation had emerged – and indeed that week marked a major peak in front of the relentless slide. (If you’re curious, a long-legged doji has a large wick, which reflects that new move lows were rejected—and remember, it carries more power at a top than at a bottom).

Regular readers of this column might ask: “But what about that breach of 650 support from the January low?” It’s a fair question...after all, persistent price action below 650 opens the door to an extension of the bear market move, with the next big targets at 614 and 591. However, I like what happened this week in that we slipped just through 650 to trigger any stops from weak longs and to reassess that point as true value. From there, the decent recovery move and subsequent long-legged doji pattern are at least somewhat encouraging.

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