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While the fiscal cliff and debt ceiling limit have received much of the financial news, the small cap Russell 2000 Index has moved to new all-time highs without much fanfare. The Index first traded at the 856.00 level back in 2007, before retreating 60% in 2008 and 2009. Then the Index rallied back, posting a high of 868.00 in May of 2011; before succumbing to another break of roughly 30%. But the Russell has come back yet again, and last week posted a new all-time high of 880.47.
Below is a weekly bar chart of the Russell 2000 Index. The white horizontal line represents resistance at the previous all-time highs. You can see how the market has recently pushed through that level, but I'd like to see a 3% penetration through a level of this significance before I declare resistance has been breached. A 3% penetration through the previous all-time high of 868.00 would have the Index at 894.00. The market's major support rests at the red support trend-line, which would probably lie somewhere between 750.00 and 800.00, depending on the slope of any potential future down move.
In closing, note that if the market were to either reverse lower or trade sideways, the converging major support and resistance levels could pressurize the market. In other words, as of today, major support at the presupposed level of 800.00, and resistance at the new index high of 880.00, are merely 9 percentage points apart. Meanwhile, the Russell 2000 Index has had daily trading ranges as high as 10% during the last several years. These converging levels could lead to a volatile and substantial break-out, either way.
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© 2012, Dominic Cimino of Preferred Planning Concepts, LLC (You can explore the services offered by Preferred Planning Concepts by viewing us on our website at www.ppcplanning.com) Any redistribution, reprinting, or reference to this chart or content is allowed so long as reference to the author and source is acknowledged.
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