The Russell 2000 (NYSE:IWM) posted a couple of bullish patterns this past week, keeping alive some hope that stocks can forge a bottom for the big bear market move in this zone. Although the so-called long-legged doji formation we discussed last week had a short shelf life, we still see a decent double bottom on weekly charts and a nice rally back away from key support near 650.

If the Russell can maintain upside momentum this coming week and rally away from this price area, it would strengthen the potential for either a bottom or a solid intermediate corrective bounce. The first test from a short-term perspective comes in near 685, then at our old swing line at 700, then approaching 725.

It’s premature to declare that a potential bottom is in play for the stock market: remember, previous recessionary periods for the U.S. economy yielded stock market declines in the 40-50% range, and this move accounts for about 25% at the low. In addition, the chart patterns on long-term studies suggest a longer time frame might be needed for this downswing (the previous similar top back in 2000 required nearly four years to recover to new highs). However, even if a bottom might not be carved out at this point, a corrective bounce is often seen within bear market moves as the shorts pocket gains, and the longs probe around for value.

If the market does approach 725 soon...

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