Russell 2000: Still bullish, but at key test into big data week

    Small-cap stocks have been in recovery mode for the last three weeks after bouncing off a familiar value zone that corresponded with the market bottoms in both January and March. The Russell 2000 (NYSE:IWM) is now testing important resistance in the 725 zone that thwarted rallies off the January recovery and must keep things together during a key week to maintain the bullish chart structure.

    The market faces a stretch of important economic data this week that could go a long way toward suggesting that the worst of the news has been discovered, or that things are still a long way off on any road to recovery. If the chart structure can vault through logical resistance next week from 718 to 725 amid positive economic news, then it would help validate the July bottom and launch small caps toward the next resistance zone near 750.

    However, if the market stumbles through the data this week and slips back below 685 (and 677), then it would damage the bottoming argument and could easily spark a push back toward the July lows. As we’ve said before, the foundation from the July bottom is not as powerful as the one formed back in March (triple bottom vs. double bottom) and therefore the quicker the market can push higher, then the more breathing room it provides to the chart health.

    The recent bounce in stocks has carried an extremely high correlation to a pullback in crude oil prices. There is a magnificent double top on crude oil charts off the recent highs and it absolutely matches perfectly with the recent bottom in small-cap stocks. However, it should be noted that price action in crude oil and stocks is NOT a zero sum game. Despite all the hand-wringing over oil prices, the stock market rallied in tandem with energy from March to June. However, it does appear that when crude oil gets above $135 dollars a barrel, the stock market quivers. If you are thinking that the correlation between crude and stocks will remain tight for awhile, then it’s . . .

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