The fall in Russell 2000 (RTY) from the 1,296 high in July may have bottomed and a breakout above the ST resistance trend line could be the next move.
The recent rebound from the 1,079 low in October could continue on higher for the next couple of weeks or months as bullish divergence signals were spotted on both indicators.
The global equity markets, especially the US equity markets have seen some sign of recovery, which we have mentioned in our previous notes over the few days.
A move above 1,165 would see prices climb higher towards 1,225 and 1,243 next.
A drop below 1,079 would see the resumption of its ST downtrend.
The question is now which one should you choose as a trading vehicle to try to take advantage of the upcoming rebound.
Since the 2015 low, RTY has underperformed the S&P 500 (SPX) but we think this situation could be changing soon given the double bottom formation on its relative strength chart (see right chart).
A breakout above the ST resistance trend line would put the RTY on overdrive mode (at least in the short term) relative to the bigger brother, the SPX.
However, do bear in mind that the LT outlook is still cloudy and a tight stop loss is advisable. Small cap stocks could still the better play on the long side for now. (Read Report)
Source : CIMB Research