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TECHNICAL ANALYSIS


In A Rut

06/22/10 12:47:54 PM
by Austin Passamonte

Here's the midterm outlook for the Russell 2000 stock index market.

Security:   RUT
Position:   N/A

The Russell 2000 small-cap index (RUT) has been a broad market leader since the tech-wreck days of 2000, when the semiconductor index passed that leadership baton. RUT is now where the "hot money" flows -- a proxy indication of what comes next in the market.


FIGURE 1: RUT, WEEKLY
Graphic provided by: TradeStation.
 
The weekly chart view of RUT (Figure 1) shows two ascending trendlines since the July 2009 pullback lows to higher subsequent lows through the months that followed. Whenever you have two trendlines near one another, a sequential break through each usually projects a pending trend change ahead. In this case, the upper line has broken for a second time, and the lower line currently struggles to contain support right now.

FIGURE 2: RUT, WEEKLY
Graphic provided by: TradeStation.
 
Adding a 1-2-3 Fib projection measure to the mix, we see where price paused at the lower relative magnets before peaking above 233% and retracing back down. That 582 zone below should be at least one layer of support if tested again. See Figure 2.

FIGURE 3: RUT, WEEKLY
Graphic provided by: TradeStation.
 
Adding a second 1-2-3 projected bracket off an entirely different swing series shows overlapped values in two areas: 720-740 highs (peaked) and 560s to 580s congestion below. Here's a second layer of price magnetism that should offer support once again. See Figure 3.

FIGURE 4: RUT, WEEKLY
Graphic provided by: TradeStation.
 
If we measure off an earlier 1-2-3 swing in wider-range fashion, look what shows up near the 580 zone again -- yet another Fibonacci projection line, no fewer than three separate layers down there (Figure 4). These projected magnets come from totally different high-low swing series and are viewed by three (or more) totally different groups of traders making similar decisions for the same reasons. That's the type of fundamental behavior that creates the essence of resistance and support. It appears to be that RUT will find willing hands to prop or pause price action into any continued decline down there.



Austin Passamonte

Austin is a private trader who trades emini stock index futures intraday. He currently trades various futures markets from home in addition to managing a trader's educational forum

Title: Individual Trader
Company: CoiledMarkets.com
Address: PO Box 633
Naples, NY 14512
Website: coiledmarkets.com/blog
E-mail address: austinp44@yahoo.com

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Date: 06/22/10Rank: 1Comment: 
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