Russell 2000 swingline remains at 450
Using strict chart-speak, the January stock market collapse is consistent with a corrective pullback off the November-January rally. Of course, chart-speak doesn’t fully appreciate the relentless volatility and false breakouts of recent price direction. Aren’t these elongated consolidations supposed to be a little more vanilla and a lot less jalapeno?
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 Russell 2000 (NYSE:IWM) this year. I don’t mind occasional forays below 450 as we build this elongated bottom. However, I do not want to start spending significant time below that point. Doing so greatly risks a hard retest of the November lows and also lowers the likely yearly price range. Maybe it’s not overly optimistic, but I am looking for small caps to basically trade between 450 and 650 this year (with most of the action between 450-550). 450 is our own “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. Below 450 and small-cap performance is a major concern; above 450 and it’s all about timing, patience and psychology.
So, 450 is our key swingline; what’s the deal with 427? That point marks a 61.8% Fibonacci retracement of the November-January rally and would also breach the previous pullback low at 431. A slide through 427 would suggest that the bounce off the November lows was only corrective in nature and not bottom forming. I also think 416 is key below 427, but strictly speaking a Russell below 427 would be an alarming development.
The table below contains support and resistance points for the Russell 2000 to keep in mind heading into next week’s trading activity. 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
- 495.54 20-week moving average; nice trend support for bull run; smashed on
July/August 2007 collapse
- 491.15 swingline of note; former resistance bounce peak
- 473.14 late November congestion range peak
- 467.22 20-day moving average
- 450.00 small-cap “Mendoza Swingline”
> 443.53 Jan. 30 close
- 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.
This week’s economic calendar turned out to be a doozy as unemployment rolls swelled to a record high, new home sales plunged to a record low and our economy swooned into the deepest contraction since the early 1980s. Next week serves up several key economic indicators, highlighted by Friday’s big monthly employment release.
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 Personal Incom (Mon., 8:30 a.m.) -0.3%
4 ISM Manufacturing Survey (Mon., 10:00 a.m.) 33.0
1 Construction Spending (Mon., 10:00 a.m.) -1.2%
2 Vehicle Sales (Tues., all day) 10.2 mln
4 ISM Non-Manufacturing Survey (Wed., 10:00 a.m.) 39.1
? Fed’s Pianalto on econ outlook (Wed.,closed to press)
4 Weekly Claims (Thurs., 8:30 a.m.) 592,000
1 Productivity (Thurs., 8:30 a.m.) 1.0%
0 Fed’s Plosser “welcome remarks” (Thurs., 8:30 a.m.)
1 Fed’s Bullard “policy tools in low rate times” (Thurs., 1:00 p.m.)
1 Fed’s Stern “policy prospects (Thurs., 2:00 p.m.)
5 Employment Report (Fri., 8:30 a.m.) non-farm -500,000
Jobless rate 7.5%
0 Consumer Credit (Fri., 2:00 p.m.) -$2.3 bln
0 Fed’s Yellen “outlook” (Fri., 5:45 p.m.)
