All the major stock indexes reached new all-time highs Wednesday. The Dow Jones Industrials, S&P 500 and NASDAQ have been stealing the spotlight with their strong trends and then consolidation, but the Russell 2000 (via iShares Russell 2000 (NYSE:IWM)) has been a workhorse. Ever since December, it has been plodding higher in a channel. It would reach the top of the channel and then pullback to the bottom, reverse again and make a higher high.
In June it reached the top again and pulled back, but found support much higher in the channel. Is this time going to be different? There are a few signs that it might be different this time. Perhaps it is time for the Russell 2000 to end the ping pong and move into the spotlight.
Start at the top of the chart above and work your way down. First notice the RSI. It moved back into the bullish zone after the November election, racing up to overbought territory. Every pullback since then has held in the bullish range. Next the price action itself shows consolidation in the channel, but as noted earlier, much higher in the channel. This is a change of character. Finally, the MACD as the bottom of the chart tells an interesting story.
The circles show each instance that the MACD crossed up, a bullish buy signal. The first cross signaled the move into the channel and then each of the next 3 circles saw a cross when the price was near the bottom of the channel. The cross that happened Tuesday was different, coming with the price near the top of the channel. The buy signal now would indicate a potential for a major breakout, above the channel to the upside.
It is never a given that a signal will work out, but with everything lined up, a push above the top of the channel should be considered very bullish for the Russell 2000.
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