Russell 2000: Lowest weekly close since Oct 2005

The Russell 2000 (NYSE: IWM) slipped through 680/675 support lines this past week and endured a freefall back into the shadow of the rate-cut bottom from January along the 650 line. As I’ve said ever since that low, the market would likely need to revisit that area to confirm it as a true support point if the Russell could not climb through important resistance in the 734-743 area. That risk was only accentuated by the market’s inability in recent days to hold above the swing line at 700.

We find small caps at the lowest weekly close since October 2005 and facing critical support at 650. If that 650 area can not attract buyers and contain the bears, then the next major chart-related support is down around 620-614, and the next long-term Fibonacci target is down at 591.

The reason I was wary of the initial bounce off 650 was because it happened so fast, and was reportedly fueled primarily by short-covering – not new buying interest. History shows that when the Russell 2000 sinks to major multi-year lows, it almost always takes TIME and testing of buyer resolve to forge a true bottom. Confirmation of 650 here nearly six weeks after the fact would create a much more compelling bottoming formation on charts and would fit with historical price action more cleanly.

All that said, do we see a dynamic reversal bottom in play yet? Absolutely not! Markets are trending animals, and the path of least resistance remains toward lower prices. If this indeed marked a key turning point for the Russell 2000 index, then we would want to see a push back above 700 soon, and a rally back above 743 within a few weeks. Persistent probing into new lows below 650 will only erode buyer confidence and clear the way for a plunge down to 600-591.

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