Small-cap stocks were a relatively calm, range-bound affair last week...quite a break from the recent spate of extreme volatility in the shadow of a huge meltdown off record highs set in July. As noted in last week’s column, it would be no surprise to see the Russell 2000 (NYSE: IWM) settle into a trading range pattern for a few weeks to consolidate and digest recent price swings.

Looking ahead to this week’s action, the key short-term points to watch are at 803 on the upside, and 776 on the downside. The zone around 800 has previously been key resistance for the Russell, back in late 2006, and is once again in play on the current chart structure. A convincing breakout above 803 puts 820 and then 840 into focus as key resistance points to watch. Meanwhile, the aforementioned 776 line represents the top side of the gap on daily charts left in front of the surprise discount rate cut last week. If we are to view that action as an important turning point for the market, then it follows that it is important for that gap to hold sway. If we fill that gap (the downside fill point is at 768.91), then a retest of lows comes into play.

The Russell has not posted three consecutive months in which the market closed below opening levels (signified with a black or red color fill on candlestick charts) during the entire bull market run that started some five years ago. As long as the index closes out the month of August above 775.00 then it will keep that streak intact. This is more than just a chart anomaly – if we snap that streak it will only add to some of the topping concerns in play and keep short-term longs on a short equity leash.

From a long-term perspective, there are some positive signs to keep in mind. For one, the market is still technically in a long-term upward trend, and although it is a mature move, it would take a decisive slide through a 20% correction line to suggest that an important top is in place.

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