The Week The Russell 2000 Finally Broke Out To The Upside

It was a trading range to tell your grandchildren about.

The thing went on for months and months, the type of up a little, down a little action that drives even the best bred machine-learning algorithms up the wall, not to mention actual humans. Finally, this week the Russell 2000 index of small capitalization stocks blasted through resistance and found itself a new all time high.

The buyers overcame those sellers who had been showing up regularly at just above the 230 price level. All other things being equal (and they never really are) this group of small caps has been given permission to go higher. If Russia invades Ukraine or if China invades Taiwan, that may alter the risk dynamic, of course.

For now, though, the question is how much higher? Will this index develop into a melt-up stage such as we’ve seen lately in stocks like Tesla? It will bear watching as other significant sector indexes also broke out higher this week. With the Shiller S&P 500 price-earnings ratio up there at 40, markets are a little heady right now.

They can always get headier — that may eventually be a problem. Anyway, here are the charts.

IWM’s daily price chart looks like this now:

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The dotted red-line that connects the March high with the June highs was the resistance that seemed to keep the small caps at bay. Once the index crossed that line and closed there, big volume showed up as indicated just below the price chart. The blue-lined 50-day moving average flirted with crossing below the red-lined 200-day moving average, but has now turned back upward. The months-long consolidation is over and the break-out upward is clear.

The Russell 2000 index of small caps weekly price chart looks like this:

This is a classic look of a break above previous resistance. In future books by price chart analysts, readers will be shown this as an example. After the extraordinary move up from the March, 2020 pandemic fears low, the small caps stopped going higher in March, 2021 and just kept trading sideways basically within a range. You can make it out between the red-dotted lines showing support and resistance this year. Note the definite increase in volume (seen just below the price chart) and the moving average convergence/divergence positive signal (circled in red).

Here’s the Russell 2000 index point-and-figure price chart:

Look at these 3 features of this old-school method of price analysis: 1) The up trending blue line from the March/April, 2020 pandemic lows remains in place and has not been tested at all since that bottom. 2) You can clearly see this year’s seemingly unending trading range between 208 and 232. 3) The breakout above the range is obvious even to a fundamental analyst.

Note in the upper left, where Stockcharts.com provides a description of the chart in bright green as “P and F Pattern: Ascending Triple Top Breakout on 01-November-2021.”

Correct.

Not investment advice. For educational purposes only. Always consult with a registered investment advisor before making any decisions.

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