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.
Looking ahead to this week’s action, if the market can hold 650, then I would expect a rally toward the 690 area. However, if 650 is breached on a daily closing basis, then an extension of the bearish price action down toward 620 comes into play. There will be resistance on a bounce here, first at 675, then at 688 and 700. Because the Russell 2000 Index is at long-term lows, support becomes a much murkier proposition, and can lead to sudden vacuum-like declines in prices.
The table below contains support and resistance points for the Russell 2000 to keep in mind heading into this week’s trading. For long-term traders, some of these key levels may remain in place for weeks...even months at a time. Those with a short-term horizon will lean toward levels that are more immediately in play. As time passes, we will build upon this table with levels that come into focus as important testing zones for trend analysis, and to act as road mark indicators for key reversal patterns.
From a trading perspective, I always keep a printout handy each day of my key support and resistance points for any stock or market I’m trading. It helps remind me of key areas to watch for signs of trend exhaustion, and also for potential entry/exit points for trades.
TECHNICAL ANALYSIS SUPPORT/RESISTANCE POINTS FOR RUSSELL 2000
- 890.16 upward channel resistance on monthly charts off 5-year run;
also fits with potential upside breakout of congestion zone
- 860.00 projected “figure” resistance off 15-handle testing zones on the ’06 rally
- 856.48 record intraday high set July 13
- 855.77 July 13 close; record high daily and weekly close
- 852.06 Oct. 11 high; bearish reversal peak on daily charts
- 830.01 previous high from the February 2007 peak; key swing line of note
- 815.00 key swing line
- 801.00 congestion resistance zone from November-December 2006
- 777.00 61.8% Fibonacci retracement of the Aug. 2007 peak-Jan. 2008 collapse
- 760.06 March correction low; key approximate double bottom formation support;
Near 50% Fibonacci of July ’06-’07 bull run; violated in November ’07;
Key swingline to watch
- 753.50 50% Fibonacci retracement of the Aug. 2007 record peak-Jan. 2008 collapse
- 743.49 previous Aug. ‘07 collapse low; short-term support violated, now resistance;
Also near chart gap left by Jan. 2008 employment report news
- 734.40 previous key slide low; now resistance on a bounce
- 731.24 recent double top in Feb ‘08
- 729.14 20-week moving average; nice trend support for bull run; smashed on
July/August 2007 collapse
- 729.00 38.2% Fibonacci retracement of the Aug. 2007 peak-Jan. 2008 collapse
- 712.17 support zone on weekly charts; reversal low in Oct. 2006; now resistance
- 700.00 “figure” swing line; no monthly close below here since Dec ‘05
- 697.25 20-day moving average
- 685.00 20% decline off 2007 record highs; breached Jan. 2008
- 680.94 mild reversal low on daily charts Jan. 28
- 668.58 July 2006 low; important bottom for summer correction
> 660.11 Mar. 7 close
- 660.00 short-term downside target on wedge breakout; support zone
- 652.00 38.2% Fibonacci retracement of 2002-2007 bull run
- 650.00 bear market move low set Jan. 22, 2008, critical support zone
- 614.76 October 2005 bottom; next major chart related downside point
- 591.00 50% Fibonacci retracement of the 2002-2007 bull market run
In addition to the printout of support and resistance points to watch, I also like to keep in mind where sudden volatility can spring into the trading mix from the typical release of economic data and Federal Reserve activity.
The economic calendar this week is light compared to the risk typically associated with last week’s employment release. However, there are still important reports slated for this week, highlighted by Thursday’s Retail Sales data, and Friday’s CPI release. Both of these events could spark early morning volatility in stocks, especially since the first three days of the week are relatively calm from an outside influence aspect.
The table below highlights calendar event risk for the coming week, with the emphasis on various economic reports. Our table below has a special “Risk Factor” designation, which is simply my assignment of risk to that event, ranging from 0 to 5, with 5 marking the highest risk for volatile market swings.
CALENDAR EVENT RISK ASSESSMENT
DAY REPORT/ITEM (all times Eastern) RISK FACTOR
Mon Wholesale Inventories (10:00 a.m.) 0
Tue International Trade (8:30 a.m.) 2
Tue Fed’s Kroszner at banker’s conf. (10:00 a.m.) 0
Wed Treasury Budget (2:00 p.m.) 0
Thu Retail Sales (8:30 a.m.) 4
Thu Import Prices (8:30 a.m.) 0
Thu Weekly Claims (8:30 a.m.) 1
Thu Business Inventories (10:00 a.m.) 2
Fri CPI (8:30 a.m.) 4
Fri Michigan Sentiment (10:00 a.m.) 1
Fri Fed’s Bernanke @ Reinvestment conf. (12:30 p.m.) 2
About the Author
Kevin Pendley covers the Russell 2000 index for SmallCapInvestor.com and writes a weekly technical analysis column.
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