Happy New Year
Hold onto your hats, folks. The Russell 2000 (NYSE:IWM) notched the first weekly advance of the New Year this past week, marking the third-best weekly gain since the bear market collapse began back in mid-September. In what might be a head-scratcher to some investors, the stock market went on a bullish rampage Friday (hey, it was the third-best one-day gain of the year), shrugging off brutal employment data to focus on the pot of gold at the end of the rainbow--otherwise known as government handouts to banks.
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).
All of these little trading road signs have taken on a much bigger role this year because the market has nestled into a long-term sideways consolidation mode. This has become a traders market—although I don’t have a problem with long-term players nibbling on entry points, especially for small-caps as long as the Russell holds above 427 and 416.
As we prepare for this week’s price action, here are the keys to watch: (1) can the market retain upside momentum and not fall prey to a “buy-the-rumor, sell-the-fact” pullback when we get the Obama bank bailout and stimulus program details? (2) Can the Russell 2000 retain price action above the 450 “Mendoza line” (named after the light hitting baseball player who was a fielding whiz, but struggled at the plate to best a .200 hitting average)? (3) Can the Russell push back above the 474 range highs?
From a chart standpoint, the most logical course of action this week would be a failed early test of 474, and a slide back below 450 to test the resolve of this past week’s buying crowd. However, if we climb above 474 Monday and hold that line, then a move toward 500 could happen fairly quickly. On a side note, regular readers will recall that I am closely watching the ISE Homebuilder Index for signs of a bottom in the market, since the housing market was a big part of this whole collapse. Well, the Homebuilder Index has actually been higher for two consecutive weeks and is testing the 20-week moving average for the first time since the index had a big double top on weekly charts back at the September peak. This is a key testing zone this week for homebuilder stocks.
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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. Keep in mind that when the market is near record highs, it is much easier to find valid support than resistance points.
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, 2007
- 855.77 July 13, 2007 close; record high daily and weekly close
- 852.06 Oct. 11, 2007 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
- 775.03 61.8% Fibonacci retracement of the Aug. 2007 peak-Mar. 2008 collapse
- 764.38 new move high set August 15, 2008; approximate double top with June ‘08
- 762.89 previous move high set June 5, 2008
- 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
- 743.49 previous Aug. ‘07 collapse low; short-term support violated, now resistance;
Also near chart gap left by Jan. 2008 employment report news
- 726.19 previous double top in June/July 2008
- 720.50 swing point
- 700.00 “figure” swing line; no monthly close below here since Dec ’05 until Feb ‘08
- 685.00 20% decline off 2007 record highs; breached Jan. 2008, July 2008, Sept. ‘08
- 680.94 mild reversal low on daily charts Jan. 28; near 50% of the March ’08 bounce
- 668.58 July 2006 low; important bottom for summer correction; now resistance
- 660.00 short-term downside target on wedge breakout; now swing line
- 650.00 previous bear market move low set Jan. 22, 2008, former critical support zone
- 647.37 July 15 2008 low; approximate triple bottom with Jan ’08; Mar ’08; snapped
October 2008
- 643.28 previous move low set Mar. 10, 2008; now resistance
- 614.76 October 2005 bottom; now resistance on a bounce
- 606.42 April 2004 highs; now resistance
- 577.00 consolidation zone when market was bottoming in spring 2005
- 570.06 absolute low on spring 2005 bottom; now resistance
- 551.00 short-term resistance from daily charts in October 2008; early Nov. peak
- 514.50 swing line
- 500.00 logical big “figure” swingline
- 491.15 swingline of note; former resistance bounce peak
- 483.94 20-week moving average; nice trend support for bull run; smashed on
July/August 2007 collapse
- 473.14 late November congestion range peak
> 470.70 Feb. 6 close
- 456.05 20-day moving average
- 450.00 small-cap “Mendoza Swingline”
- 442.10 previous bear market low set Oct. 28, 2008; bullish reversal on daily charts
- 433.36 new bear market bottom set Nov. 13; bullish reversal on daily charts
- 430.00 figure point near 50% “recession target” pullback
- 427.66 61.8% Fibonacci retracement of Nov-Jan rally
- 416.13 recent congestion zone trough
- 406.54 Nov. 21 close; lowest weekly close since April 2003
- 400.00 figure support matches with trading zone from 2002-2003
- 385.31 lowest daily close for the 2008 collapse
- 371.30 Nov. 21 bear market bottom; bullish reversal on daily charts
- 354.00 approximate value zone when market was bottoming in 2002
- 324.90 October 2002 bear market low
In addition to the print out 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 coming week serves up a big break from the manic rush of key reports we’ve seen the previous two weeks, which should allow the market to focus on news out of Washington on the stimulus and bank package, and on other events from around the world. Still, Thursday’s tandem of retail sales and weekly claims could usher in some serious pre-market volatility for stocks, especially if the market is looking for meaningful data after a little respite early in the week.
The table below highlights calendar event risk for next 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
RISK
FACTOR REPORT/ITEM (all times Eastern) Consensus
1 Fed’s Fisher on the global crisis (Mon., 8:45 p.m.)
1 Wholesale Inventories (Tues., 10:00 a.m.) -0.7%
4? Fed Chair Bernanke testifies at House (Tues., 1:00 p.m.)
2 International Trade (Wed., 8:30 a.m.) -$36.0 bln
1 Fed’s Duke on housing market (Wed., 9:50 a.m.?)
2 Fed’s Evans on the economy (Wed., 12:30 p.m.)
5 Retail Sales (Thurs., 8:30 a.m.) -0.7%
4 Weekly Claims (Thurs., 8:30 a.m.) 610,000
1 Business Inventories (Thurs., 10:00 a.m.) -0.6%
1 Michigan Sentiment (Fri., 10:00 a.m.) 61.3
