Russell 2000: Breakout at hand?

When it was all said and done this past week small caps were basically unchanged, which shortchanges the volatile roller coaster ride investors had to survive to arrive at Friday’s close. In the end, the Russell 2000 (NYSE:IWM) managed to notch the highest weekly close since late January, which keeps the heat on any losing sell positions heading into an important week.

From an absolute return basis, recent action might seem like very little bang for the buck. However, on a long-term chart structure, the market is building a nice foundation for the bottom that was carved out in the first quarter of 2008. Given the extreme nature of the losses from last year’s record highs, a bottom formed over time is a more reliable structure than one suggested by volatile price spikes.

As we move into the coming week’s action, the market is sitting just shy of trendline resistance drawn off the October peak. A decisive push through that trendline would be yet another signal that there are legs beneath this bottoming action. However, it should be noted that the trendline is coupled to key long-term chart resistance near 724, which marks a 38.2% Fibonacci retracement drawn off the entire bear market collapse. The last time the market tested that zone it retreated, but this time around we’ve now had several weeks to consolidate and build a power base for a more commanding upside push. In fact, ever since the lows were hammered out in March, we have had five weeks of consolidation between the 681 and 724 zone. From a breakout perspective, a breach in either direction of that range carries a target move of ...

---You can read the FULL article when you register (registration is free!) or sign-in to SmallCapInvestor.com---