The Russell 2000 (NYSE:IWM) had a mixed session on the charts Friday as traders had difficulty reading the nuances of the big employment report. The fact that the market held together after a key data release was promising, but after several months of head-fake short-term rallies on the jobs report, one has to take the initial market reaction with a grain of salt.

The chart structure is a little toppy on daily studies after Friday’s rejection of intraday highs left a so-called doji on daily candlestick charts, but that is counterbalanced by a healthy rally off a potential warning formation on weekly and monthly charts.

The market did push through important resistance last week at our old swingline at 700, and above mild chart struggles at 705. Weekly studies show that the Russell 2000 index is on the verge of closing above the 20-week trend moving average, something that hasn’t happened since October 2007. That 20-week moving average was a key trend marker on the big bull market run from 2002-2007, and a rally through that point could start to attract trend-following money into the buy side of small cap stocks.

The critical test for the Russell remains overhead along the 724 zone; a decisive breach of that area would greatly support the bottoming argument, as would a drive through 729, which marks a 38.2% Fibonacci retracement of the bear market collapse. The consolidation process on weekly and monthly charts has helped to form a decent foundation for a rally, and the market is slowly grinding up toward a test of levels that would significantly enhance that view.

Despite the promising signals, there is still no...

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