Russell2000 Is Testing Major Resistance
- Posted by JC Parets
- on October 1st, 2012
Here we are back to the 2007 highs in the Russell2000 Small Cap Index. The 850s-860s in $RUT was the ceiling in 2007 and again at the 2011 highs for stocks. Today we’re back at these levels and building momentum with every correction. Notice in this chart that the buyers keep coming in to buy at higher and higher prices. The summer sell-off in 2010 was lower than the one in summer of 2011, which was lower than this year’s June lows. This tells us that the buyers are getting more and more impatient with each correction:
The more times that a level is tested, the higher the likelihood that we break. In this case, we have three tests on this weekly chart over a 5+ year period. Triple tops are a myth in my book so we’re in the camp that a breakout occurs here eventually. Will this be the final test? We’ll see. But we do know that we’re getting closer and closer.
We know there are sellers around the 850s-860s. That can’t be argued against. We also know that the buyers keep jumping in to buy quicker and quicker. Again, facts. Furthermore, we know that with each test of resistance, more and more sellers willing to sell at that price will have already sold. So the presumption here is that eventually, the combination of sellers running out, and impatient buyers taking full control causes a breakout about this key level.
This breakout would take the Russell2000 to prices we’ve never seen before. Ever. So the sky is really the limit. But we want to see some weekly closes at new highs before we start getting all excited. This is definitely something on our radar.
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) and is a member of the Market Technicians Association. More
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