Russell 2000: Upside "grinding" needed to declare bottom

The Russell 2000 (IWM) has now put together impressive back-to-back weekly rallies off the rate cut low from Jan. 22, working off oversold conditions on daily and weekly charts in the process. Although price action has been solid since that recent low, the market still has upside grinding to attend to before we can declare that a bottom is in place.

Importantly, the first test on our radar screen will come into focus in the coming week. That spot comes in a zone from 734 to 743 and fits nicely with both chart-related levels and mathematical correction targets. If you’ve been trading small caps for awhile, you’ll remember that the market was able to carve out solid support at 736 and 734 last summer and autumn, and that area now stands as resistance on the recent rally. In addition, 742.70 marks a 61.8% Fibonacci retracement line off the latest leg down in the bear market move (from the December peak to the January low).

If the market can push through 734 and 743 this week with ease and then trade consistently above that zone, it opens the door for a run toward 760 and perhaps even toward 775. If the Russell 2000 Index can climb to 777, that would set up a test of critical resistance at the 61.8% line of the ENTIRE bear market collapse from the 2007 all-time high to this year’s multi-year low.

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