RUT: Can it Stay Above the 200MA?

I love trading the RUT. If for no other reason I appreciate the funky personality of this market index. To me it's very much like an excited puppy that just loves to frolic and play no matter what kind of environment it's in. The only danger is when it bolts into the street without looking and then has to start dodging cars. We love the puppy and we want it to be safe, but we need to teach him how to stay out of the street while cars are whizzing by.

Thanks for indulging me in my puppy analogy and let me give you a real world example of what I'm talking about. When I say "excited puppy" I'm referring to the bullishness of the RUT. In late May the RUT was continuing to move up and broke through the 735 resistance level. It was now in the street, it saw a car coming but it was in the other lane so no harm no foul. It kept playing in the street (above the 735 level) and the cars seemed to disappear so it started running down the street but this time in the other lane against traffic (RUT decided to go up to 750) The puppy was euphoric and now didn't even realize it was in the street any more but thought it was in a grass filled park, so it started rolling around on the ground fantasizing that's it's belly was being rubbed by Angelina Jolie (RUT is now up at 764).

The point here is that the puppy had no business being in the street with oncoming traffic coming and the RUT had no business being at 764.

The market is the great equalizer and often when prices go against common sense, experienced traders realize two things. One, don't argue with price action, just trade what you see; and two, if gas is at $4.50 a gallon and rising it's only a matter of time before small caps are going to get the smack down.

Well, the charts show how our story ended, and that was with the puppy going to the vet with a bumper injury (don't worry he's okay now) and the RUT crashing 118 points in 5 weeks before it bottomed and started bouncing back up.

The moral of our story is simple. Trade what you see, but be very cognizant of support and resistant levels and understand that they work almost all of the time although "timing" my not be on your schedule, but is completely up to the "market's" schedule.

We should all have trading systems and rules that take advantage of these wonderful extended moves that the RUT offers while giving ourselves plenty of time to be right and graceful ways to exit if we're wrong.

The RUT closed up almost 3% today to close at 734.30 and is sitting right at the 735 resistance level. The market closed with an extremely bullish fed week and next week we move into August expiry.

If the bullish tone continues than all of the indices can continue to move up and start building a base to start launching from; however, keep in mind that some resistance levels are being tested right now.

One other thing to note, the RUT has only spend 4 days this year above the 200MA on the daily charts including today. That means that the 200MA has also been a significant resistance level. If it can hold above this 200MA then it would be an extremely good sign for bulls, and likely propel the RUT to some new YTD highs. If it falls back under the 200 then the bears will have another crack at it.

Have a great weekend.

RUT Daily Chart: