5 Reasons to Watch the Russell 2000

• Posted by Greg Harmon
• on May 10th, 2016

The Russell 2000 is the barometer for the stock market for many. The thought goes that as investors are willing to place money into riskier smaller companies there is a risk on attitude and all stocks will rise. That narrative may or may not be true. But there are 5 reasons to watch the small cap index ($IWM) as a possible vehicle to profit from directly.

The chart below shows all 5. The first, after retesting the late December level that led to a down turn, it pulled back. The pullback stopped at the 50 day SMA and turned back higher Monday. A reversal at the 50 day is a signal of strength. Another signal of strength is that the pullback only retraced 23.6% of the Shark harmonic, failing to get to the 38.2% retracement. The bounce also occurred at the bottom of the Bollinger Bands®, without the lower Bands opening. In fact it is squeezing higher.

Momentum bounced as well. The RSI reversed higher and never broke the bullish zone. The lower low in the RSI without a lower low in price also sets up for a Positive RSI Reversal that gives a price objective to about 116.50. Finally, the pullback and then reversal sets the Handle for a Cup and Handle pattern with a price objective over 136. Take it one day at a time, but the small caps are looking like a place to be.

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