ChartWatchers

ANOTHER BREAKOUT FOR THE RUSSELL 2000

Chip Anderson

Chip Anderson

President, StockCharts.com

The Russell 2000 has not been the strongest broad index over the last few weeks, but it is still by far the strongest index in 2006 and shows no signs of stopping after another falling flag breakout on Thursday. This is the third such breakout since December and the death of small-caps has been greatly exaggerated. Longer term, the index remains in a rising price channel with lower trendline support at 755 and upper trendline resistance around 820.



I also use RSI to gauge the strength and direction of the long-term trend. This key momentum indicator moved above 50 in early November and then held above 45 in December, February, March and April. There is clearly lots of support at 45. As long as RSI holds 45 and the index holds the lower channel trendline, the flag breakout is bullish and we should expect further gains.

In addition to using RSI for the long-term trend, it can be used to identify playable pullbacks within the trend. Notice that RSI bounced after each pullback below 50 (gray ovals) and these dips represented excellent opportunities to partake in the bigger uptrend. RSI held above 50 on the most recent pullback (falling flag). The shallowness of the pullback shows underlying strength and I expect further gains.

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More