Right about now, diehard market watchers might be saying, “Hey, wait a second...the Dow is down 10.5% in 2009 and the Russell 2000 (NYSE:IWM) is off 10.2%, and getting bullish over three-tenths of one percent is silly.” While that ’09 comparison might be true, here’s the rub: the Dow is only 5.3% above the November lows, meanwhile, the Russell is actually up 20.8% from their November lows.

One of the hidden bright spots in the recent sobering price action for the stock market has been this relative out-performance in small-caps vs. large caps. This week the Dow crashed through the previous January pullback lows and notched the lowest close on daily charts since those major November lows were forged. Yet the Russell remains well clear of the January lows.

Why is it good to see small-caps holding up better on this latest test of buyer resolve? Because when the market collapsed back in September, small-caps led the panic sell-off; this time around, as the market teeters on the verge of retesting the bear market lows, it serves up some modicum of comfort to see small-caps not leading the bearish charge at this juncture...

Alas, while it’s nice to see the market snap the 2009 losing streak, small-caps are still trapped within the confines of the recent trading range parameters. Now, if we can rustle up the courage to blast through 474 this coming week, then the upside breakout target move comes in at 517 – which would be a “Katie bar the door” kind of move in this sideways consolidation environment.

For those of us caught up in the actual detail minutia of chart activity, a 61.8% Fibonacci of the January pullback is at 485.39, so if you combine a 474 breach next week with a push through 485, then 517-518 becomes a very real target (which might take a week or two to scale)...

I suppose it’s only fitting that the market collapsed hard Thursday and Friday to wipe out what looked like the first winning week of the New Year. After all, if the market is going to carve out the worst January in history, it might as well do it with a bang. On weekly candlestick charts, we see four consecutive “red” or losing formations, something that didn’t even take place when the market was in freefall mode in September through November.

Much will likely be made the next few days by stock market watchers of the so-called “January Effect,” one interpretation of which holds that the market during the next 11 months takes it cues from what happens in the first month. Like many stats, they can be bent all kinds of ways to further whatever argument you want to make. For me, it’s a debate that is fun but which serves little purpose, because in recent years various iterations of the “January Effect” have been little more reliable than pure chance. There are two key points I’m watching next week: 450 and 427.

Regular readers of this column will know all about 450. It is our key swingline for the ...

The market left a nice bullish reversal pattern Thursday by slipping to short-term move lows, then closing higher. The formation resembled a “hammer” bottom on daily charts and that same formation is even more visible on weekly studies. The question now is whether the breach of 450 this past week was the first body blow to value investors at that level, or a “head fake” slide that served up a buying opportunity?

Thursday’s bullish reversal formation in the Russell 2000 (NYSE:IWM) will hold true as long as 453.25 holds up. Since the pattern was built on daily studies, it’s only worth focusing on for this week’s action. However, as you can see on the attached charts, the hammer on weekly studies sports a similar worrisome breach of a little channel ...

Most market “truisms” are rooted in solid theory. In fact, most of these broad theories usually worked like a charm for a long period of time, hence they grew into fabled status. In the case of the theory that “as goes January, so goes the year” -- well, that just hasn’t been the case for the Russell 2000 (NYSE:IWM). Over the past 15 years, that premise only worked 9 of 15 times, including a run of six straight from 1997-2002. Interestingly, that concept has alternated right and wrong years now for the last seven seasons of trading! If the alternating trend holds up, then small-caps will NOT follow the January trend this time around. Given the ugly start we got off to during the first full week of trading in 2009, maybe that alternating trend is a good thing. As it turned out, this week’s action saw the largest one-week decline in the ...

From a strict charting standpoint, the 2007 year-end formation was actually a much more interesting and dynamic pattern than what we see at the end of 2008. The doji-style top in 2007 made for a reasonably powerful warning signal about 2008. This year, the market simply shows a runaway bearish continuation pattern. Instead of turning points, these types of patterns typically become more about tracking the progress of support and resistance zones, and testing retracement lines to provide clues about the end of the bear market cycle.

Before we dig into the heart of this year’s annual chart study, there are a couple of “style” points to note. First, you’ll see that most of my historical reference utilizes the Dow; simply put, the Russell 2000 didn’t exist 80 years ago. Also, on the charts that accompany this column, you’ll see that I have broken down the Dow charts into various shorter time frames; if I ran all the data together, the charts lose perspective because of the massive appreciation in the Dow price series over the last 25 years. It’s quite interesting to see the various yearly patterns on their own merit. I have also...

Because of the manic speed of the collapse that was triggered in September, many were anticipating a “V” style recovery move. In a “V” bounce, the move back up is often as rapid and breathtaking as it was on the way down. However, instead of a “V” recovery move, we are likely seeing a more elongated bottoming process (at least we hope it’s a bottom). These types of patterns are known as a “U” or even “L” shape process as they take more time to unfold.

Just from a simple market behavior pattern, I find it encouraging that the small-caps have veered away from the previous pattern of sudden freefalls and then oversold bounces that fail quickly and yield to deeper lows. In fact, any breach of those price patterns that accompanied the September-November collapse is very welcome. One key element of that bearish cycle behavior – making lower lows and lower highs – came under some attack this week as the previous bounce high of 491 was breached, but not on a closing basis. If we can see a decisive daily close above 491 it would add to the ongoing bottoming process.

So, maybe this was just the calm before we endure the next storm. Maybe just the fact that we did something different that pre-dated the collapse isn’t such a bad thing. Of course, if you were on the outside of the market looking in, you might never guess that this was a tame week for small caps. After all, the news swings certainly weren’t for the faint of heart. The U.S. auto industry appeared to be on life support and the Senate was willing to pull the plug, only to have the White House rush in to the rescue. We saw more people filing for unemployment benefits than we’ve seen in 26 years. And the number of people who remain out of work and are forced to file for continuing unemployment insurance is at a level not seen since 1974. Wall St. was faced with perhaps the biggest investor scandal of all time, and don’t even get me started on the numbing 4-week bill auction that generated a yield of 0.000%.

And, believe it or not, retail sales for the month of November declined for a fifth consecutive month, something that hasn’t been seen in at least 16 years. In a normal news cycle, the retail sales report alone would have been the stuff of endless hand-wringing and fretful debate...it barely raised eyebrows this time around. And this was a “tame” week for the market.