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Russell 2000 Gets Cold Feet at Channel Resistance

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Stocks surged on Thursday and even followed through on Friday morning, but strength did not last long as selling pressure kicked in after the initial pop. Perhaps some pre-election jitters produced this classic pop and drop. Whatever the case, the Russell 2000 hit stiff resistance near its channel trend line and remains in a short-term downtrend. The chart below shows the index zigzagging lower since mid September. $RUT found support at the 200-day moving average and the late August consolidation (yellow area). Thursday’s surge off support was impressive, but follow through is what separates one-hit wonders from trend reversals. A follow through breakout is needed to reverse this seven-week slide and signal a continuation of the bigger uptrend, which has been in place since early June.

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Click this image for a live chart.

The indicator window shows the $RUT:$SPX ratio triangulating the last four months. A potential higher low could be forming in October, but we need to see a breakout to signal relative strength in the Russell 2000 (small-caps). This would be positive for the overall market. Note, however, that a break below the October low would signal renewed relative weakness in small-caps.

Good trading and good weekend!
Arthur Hill CMT

Arthur Hill
About the author: , CMT, is a Senior Technical Analyst at StockCharts.com. He has written articles for numerous financial publications including Barrons and Stocks & Commodities magazine. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed technician. In addition to his CMT designation, Arthur holds an MBA from the Cass Business School at City University in London. Learn More
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