The Russell 2000 (NYSE: IWM)  staged a solid recovery this past week, finding buyers along the key 800 support zone. Despite the bounce, the chart picture is still dominated by bearish patterns, including the so-called long-legged doji top in October that failed in the shadow of the summer record highs.

What’s more, daily charts are brewing up a potential head-and-shoulders top on daily studies. Such patterns date back to the beginning of chart analysis, reflecting a market that has topped, subsequently building a lower resistance ridge before rejecting a weak recovery rally.

Given the heavy chart structure that remains in place, and the overload of event risk this coming week from economic data and the FOMC meeting, the final shape of the chart by Friday afternoon could be crucial to setting the stage for market action for weeks to come.

The monthly chart for October will be finalized on Wednesday afternoon, which means the market will have priced in the reaction to the FOMC meeting. As we’ve seen in previous analyses, the market has been a rally machine on FOMC days in recent months, but I remain skeptical that a long-term easing mode is really good for the stock market.

Looking at the chart, if the Russell climbs back above the October peak (and especially through those summer record highs), then all bearish bets must be set aside. However, if the index slumps back below 800 after FOMC – and also on weekly charts after the jobs report Friday, then it will make the topping argument even more powerful.

An extra chart point to watch out for this week is at 827.84, which marks the 61.8% Fibonacci retracement of the October collapse. A decisive breach of that point would help alleviate some of the topping issues we’ve discussed, but a failure there would be troubling. In addition, intermediate and long-term investors will want to watch out for trendline support drawn off the August and October lows. If that line is taken out, it would only add to the bearish fodder.

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