Wednesday's Market Minute: Lines In The Sand For Russell 2000 Futures

Equities continue to experience a volatile summer trading season as Russell 2000 futures continue to trend lower. The news isn’t all bad for the small-cap index; the /RTY contract is up about 6% off its yearly lows on Jun. 16 and has retaken the 1,700 level, while the Moving Average Convergence-Divergence (MACD) indicator shows bullish momentum improving as it recently made an upside crossover. However, it’s nowhere near making new highs or entering an uptrend.

One school of thought in technical trading is to look for important support and resistance zones, and then look for “breakouts”, which are price moves through these levels, and try to enter in the direction of the breakout. The more technical indicators that are in confluence (or line up at the same price) in these zones, the greater the potential importance of the level. The /RTY is showing two examples of interesting confluences for traders to watch.

First, look to the upside near 1,830. This level has the 63-Day Exponential Moving Average, the yearly Linear Regression Line (a line of best fit based on closing prices), and a downward sloping trendline going off the highs from March and June. But keep in mind that price first needs to make a convincing move above the 21-Day Exponential Moving Average, a shorter-term line commonly used by traders as resistance during downtrends and support during uptrends.

The downside offers another potentially key level near 1,640. This represents both the yearly lows as well as the -1 Standard Deviation Line, which is simply one standard deviation line below the previously mentioned Linear Regression Line and is used in a similar fashion to moving averages as support/resistance. Traders should stay alert and be ready to take advantage of a significant move beyond either of these levels.

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