Key RUT Levels to Watch this Week

After a 9% (79 point) tumble last week we wonder if the elevator is going to stop or just keep on going down. I spent a lot of time going over my charts this weekend on various time frames to look at other historical down moves and to gauge some possible support levels. Below you'll find some charts and my notes as to how I see things. I am by no means trying to predict anything, just looking at levels that may act as support.

RUT 10 Year / Monthly Chart



Of note on the 10 year Monthly Chart is the support that the 20MA has offered since it popped to the upside of the 20MA in May 2003. Since that time there has only been one time that the Monthly bar has closed on the 20MA and there has never been a month where it closed below. The Channel shown on the chart is sitting right on top of the 20MA so we have both trendline and 20MA support at about the 770 level on the monthly.

Possible Support Levels on the Monthly Chart
Support 1: 770 - Trendline + 20 Day MA (Moving Average)
Support 2: 726 - Fib 23.6%
Support 3: 720 - 30 Day MA (Hasn't even touched the 30MA since it crossed over to upside in May 2003)

RUT 5 Year / Weekly Chart



On the Weekly Chart we have the same 770 trendline support as on the Monthly Chart and we also have 100MA support at 747.

Possible support levels on the Weekly Chart
Support 1: 770 - Trendline Support
Support 2: 747 - 100MA
Support 3: 668 - 200MA

RUT 2 Year / Daily Chart



On the 2 Year Daily Chart we can see that the down move we had last week is very similar in size to some others we've had in the past 2 years. The largest single move down in the last 2 years was 88 points May 06. This down move was followed by a 46 point retracement (dead cat bounce) before falling back down another 73 points in June 06. The Feb 27th 07 down move was only 68 points in total so we've already eclipsed that number.

It is probable that we will get a relief rally this week, but that's only a possibility. We may continue in a very ugly correction that could equal that of the dot com bust where in June 02 the RUT lost 23%. To put everything in context here is a list of some large corrections I noted on the Russell 2000 over the past 10 years

-19% - Aug 98 - 82 points
-20% - Sept 01 - 99 points (Sept 11)
-23% - July 02 - 108 (Dot.com bust)
-11% - May 06 - 88 points
- 9% - July 07 - 79 points... so far

I wouldn't even want to predict how far we may go down this month, but those are the historical numbers so the probabilities are going to be somewhere between a 9% and 23% correction. I would lean on the smaller side, but this market has been very good lately at moving in very unpredictable and over zealous ways so be prepared for anything. Key is preparation!

Possible Support Levels on the Daily Chart
Support 1: 770 - Trendline Support
Support 2: 765 - 38.2% Fib
Support 3: 736 - 50% Fib