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The Russell Leads the Way Higher

David Becker
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www.iforex.com

The Russell 2000 gained 2.4% over the last six days and outperformed the Russell 1000 iShares (IWB), which gained just .74% during the same period. The IWM (Russell 200 ETF) broke below its 200-day moving average in late July and moved back above this psychological level on Monday. Despite a strong open, the ETF closed off its high to affirm first resistance in the 114-115 area. A follow thru close above this level is needed to complete the breakout. Failure to follow through and a break below 111 would be quite negative. Resistance on the IWM is seen near the 50-day moving average. The gap higher at the open on Monday was a positive but the close well off the highs could be a sign of weak upside traction.

The IWM chart shows a long-term uptrend because 125-day TRIX is firmly positive. The 14-period RSI moved below 40 to become oversold in mid-July. The first two pieces of the puzzle were in place three weeks ago, but we did not get the trigger until Monday of a bullish trend in the IWM until the StochRSI surged to 1. IWM became oversold twice as RSI did a double dip.

Momentum on the IWM has turned positive with the MACD (moving average convergence divergence) index generating a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread). The index moved from negative to positive territory confirming the buy signal on the MACD.

However, certainly not fool proof, waiting for a StockRSI trigger would have prevented a whipsaw. There are no guarantees that Monday’s signal is a complete reversal of the recent down move.

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