Travelling Technicals with Global Indices: Russell 2000

Today's edition of travelling technicals focuses its attention on the Russell 2000, a small to mid cap stock index that tracks the performance of the largest two thousand stocks classified within that sector. Besides the amount of constituents featured in the index the other major difference when compared to its closely watched counterparts such as the Dow Jones Industrial and S&P 500 is the perceived gauge of riskiness being invested into the equity market. 

An  uptrending Russell 2000 implies a risk on market is present as small caps are seen to be the riskiest form of equity investment with the general assumption that when the overall market has entered into a bull phase all tiers of equities should rise with the prevailing trend regardless of the perception of risk attached to the equity. 

Inversely a downtrending Russell 2000 would suggests the market foresees an increased level of risk introducing itself into the market with the need to find placement into "safe haven" instruments such as bonds. This point is important to our analysis today since it comes through prominently. 

Monthly

The lows registered during the Financial Crisis marked the bottom of the index and we've subsequently seen a nice support base formed off there with consecutive retests of the uptrend. The first retest proved critical in the bull run as the candle produced around the 50 SMA(Yellow Line) provided evidence of the sustainability of the rally. Once priced secured itself above the 50 SMA it set in motion an impressive upswing. 

This was followed by a collision into resistance around the 1200 area which saw a brief period of stagnancy in trend. Given the speed at which the rally take off the overall sentiment was a pullback was in order however this failed to materialise, instead price broke through the previous highs to much fanfare but fizzled out too soon. 

A correction in time rather than a correction in price has taken hold on trade over the last two years indicating a degree of caution entering the market. 

Price appears to be in the last stage of forming the topping technical pattern of a Head and Shoulders with a slight margin of points below the resistance of 1200. The stochastic is currently overbought shifting the bias in favour of the sellers here and the long term uptrend vulnerable of being broken. 

Weekly

Glancing into the weekly we see a different picture but sentiment still pointing to vulnerability. The series' of lower lows has been broken however considering the market is motionless. There's a Cup and Handle formation in place that reflects prices to ascend past the all time highs. 

It should be noted that the break to the upside of the cup and handle wasn't done with reasonable strength leading us to believe that the validity of the bullish signals could be false. 

If that were case and looking further on to the stochastic which is overbought and headed down, there is a good chance that we'll see the index come off in the weeks to come. Depending on the depth of the move downwards and the willingness of the buyers will ultimately determine direction. 

Prices below the 200 SMA(Blue Line) would strike a bearish tone given it sits close to the long term uptrend found on the monthly chart. If prices were to fumble around the uptrend instead of neatly posting higher levels then its safe to assume that the uptrend in place since 2009 has ended.