The Russell 2000: A Long-Term View

The Russell 2000 (RUT) is known as the broadest index, and also has a high growth component as it is made up of smaller cap stocks. Many investors opt for this index when the markets start to run in the theory that the higher beta will perform better. This has clearly not been the case recently, but what do the prospects look like for it going forward? Starting at the daily timeframe chart below, 2012 looks like a a range bound environment between 72 and 86 at first glance, after the rise off of the October 2011 floor, but there is some constructive action underneath. The major lows in June and November made higher lows and the major highs in March and September, higher highs. It remains to be seen if the current move higher will extend that streak or signal some weakness.

With a Relative Strength Index (RSI) that is in bullish territory and a rising trend the bias remains to the upside, but it is clear that the Russell is having problems moving away from the three long-term support and resistance levels at 76.65, 79.10 and 81.57. Moving out to the weekly view paints a much more bullish picture. There is the prominent Inverse Head and Shoulders from 2007 through to November 2010, with a price objective of at least 112.40, and then second Inverse Head and Shoulders from 2011 with a price objective of at least 108. Both of these are very close to the 161.8% Fibonacci extension of the move lower during the Financial crisis. The Simple Moving Averages (SMA) are moving higher over 2012 bolstering the positive case with the 100-week SMA acting as support over the last year.

It has cracked the four-year uptrend support and turned it into resistance, and is back challenging that as it runs into year end. The RSI is in bullish territory with a short term uptrend and the Moving Average Convergence Divergence indicator (MACD) is crossing to positive also supporting the bullish case. Obviously the 86 level is the key to opening up the targets higher. Finally moving out the monthly view gives some insights as to hwy it may be capped in the near term. The bullish (green) Andrew’s Pitchfork is clearly in control as the price rides the Median Line higher.

But a glance at the bearish (red) Pitchfork shows the Russell above the Upper Median Line and nearing the Hagopian Trigger line, the bullish trigger. There is added bullishness on this timeframe from the bullish RSI and the MACD moving to positive. But with the leveling SMA’s and bounded by the Trigger Line and Median Line a sideways motion seems the path of least resistance. A slow drift higher.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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