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David L. Singer

|davidlsinger@gmail.com| 516.830.1786

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$RUT – RUSSELL 2000

In this Issue, I will look at the $RUT – The Russell 2000 Index, which consists of the 2000 stocks with the lowest market cap in the broader Russell 3000 Index, the ”smallcap” companies.We will look at charts over various time frames including a long-term monthlychart dating back to the inception of the Index in 1991 and a chart showing its 2009, year to date performance.

The Long-Term Monthly Chart

The Russell 2000 began its life in the throes of a very large move higher, the first leg of which started in 1991, and continued all the way into 1998. That move took the Index

Annotated Charts and Commentary on The Financial Markets By David L. Singer | November 9, 2009 |

Volume 1 – Issue

David L. Singer

|davidlsinger@gmail.com| 516.830.1786

from 125 to 492 in just seven years, although a sharp correction ensued sending pricesdown to the low 300’s. That area would continue to act as an important long-term supportlevel. From there, we got a recovery to new highs topping out around 600 during the final phase of the internet bubble in late 1999. Over the next three or so years we saw another decline and ultimately a double bottom formed in early 2003. By 2005, the Russell 2000had made new highs, and by 2007, it had hit an all-time high of approximately 850 – wayabove the 2000 highs. (Of course, the Dow Jones Industrials and Russell 2000 madesignificant new highs

vis a vis

the 2000 bubble top, whereas the S&P 500 only managedto equal its 2000 levels and the NASDAQ Composite failed to get near its previous loftyhighs.)The Index formed a head and shoulders top with the head at the all time highs and theneckline at around 675. The neckline was broken and 2008 saw massive losses as theIndex cratered back down to approximately 340, which had been in the support area in1998 and 2003. Since then we have had a large rally with a rebound back to 625. Lastmonth, October of 2009 was the first down month since March. Resistance is currently being provided by the 20 month EMA and the former neckline around 675.We have already discussed the head and shoulders top in the Index that traced out duringthe 2007-2008 highs in the broader market. However, the chart appears to show a muchlarger long term head and shoulders pattern, with the left shoulder peak formed duringthe internet bubble top, and the head comprised of the smaller head and shoulders patternthat traced out during the 2007-2008 top. Currently, it appears that as right shoulder isforming, as the Index has snapped back sharply from what would be greater necklinesupport in the 300-340 area on this monthly chart.A sketch of possible long-term outcomes:1)

The rally fails around here and the Index falls back down to the neckline,eventually prices break through and we have a massive decline. This is along thelines of the extremely bearish view and would portend massive deflation. Using a percentage measuring technique, we would likely see a retest of 1991 levels.2)

The rally fails around here and the Index falls to the neckline around 340, but, prices hold and we get another up move, possibly tracing out a another “head” ona larger “double head and shoulders”, or “Siamese head and shoulders” pattern.3)

The rally continues with low interest rates, liquidity and inflation stoking an asset price bubble, sending the Russell 2000 to new highs. In this scenario, the larger head and shoulders thesis would be invalidated.

David L. Singer

|davidlsinger@gmail.com| 516.830.1786

Weekly Chart

On the weekly chart, covering over five years, we see that the head and shoulders top in2007-2008, is part of a larger formation consisting of two head and shoulders patterns.The smaller one had its head at 856, the all time high reached in July 2007. Its necklinereached down to approximately 765. Once that level broke a decline ensued and 765acted as resistance as price traced out the right shoulder to the larger pattern, whose leftshoulder began to form in late 2005 and whose neckline was at approximately 650. Usingour measuring technique, a decline to about 450 was expected.In September 2008, the Index overshot the down side measured target and cascadedthrough the neckline of the larger pattern, making momentum lows in October 2008 at371. There was a bounce up to 520 in January before the price lows were put in duringthe March 2009 bottom at 342. Since then, we have seen a large rally with two separateup moves and consolidations. As in the other indices, it appears as if the Russell 2000formed an inverse head and shoulder bottom with the head at 342 and the neck around520. Using our measuring techniques, a rally to about 700 can be projected. As we speak,the Russell 2000 has support at its 20 week EMA at around 570 and resistance is ataround 670, the neckline from where the major head and shoulders top broke down inOctober 2008.