As Americans celebrate the Labor Day, the Russell 2000 (NYSE: IWM) has been on a little break of its own lately, digesting the collapse off record highs via sideways consolidation.

Rally attempts continue to be thwarted near logical resistance along the 800 zone, an area that was also difficult to conquer during the rally from late November 2006 to early January 2007. If the index can muster a convincing push through 803 or so, then the next upside targets to watch come into play at 820 and 840. Conversely, a dip back below 770 could easily trigger a retest of the recent lows toward the 736 area. A breakout from the current consolidation clearly could b a big deal, and with event risk high this week, it could easily take place.

Long-term players should note that August did close out above opening levels, averting the first 3-month consecutive bearish candle set-up since the bull market started out in a major upswing in early 2003. From a strict perspective, the long-term bull market remains in place, but it is a very mature market and the slide off record highs set in July was disconcerting.

From a shorter-term standpoint, if the market can push through that aforementioned 800 zone, then there are some promising signals on the charts. For instance, last week’s recovery off the lows left a bullish hammer pattern on weekly candlestick charts. These formations literally look like someone is trying to hammer out a bottom on the chart (hence the name). They typically require immediate validation and lose power on a breach of the 50% line of the candle, which makes them easy to track.
 
Most of us like to ease into the workweek after a long holiday weekend, but we could get a pretty quick snap to life Tuesday morning with key data on manufacturing. As the week progresses, how the charts set up ahead of the employment report – and even more important, how the market trades AFTER the jobs release – could be critical to set the stage for small stocks into autumn, a season that hasn’t always been kind to stocks.

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