Russell 2000 Warns of a Top Again

Not much different from the pattern seen above in the futures is the SPX (cash) index. But here, you can see something else that played into the recent rally off of last Thursday's lows. Note that last Wednesday's sharp selloff bottomed right at the 50% retracement, 1299, of the preceding rally.

Wednesday's low was just a fraction of a point lower at 1298.42, though the SPX pulled back another 3 points Thursday morning before surging to the upside. The selloff should have come as no surprise, as the market demanded a retracement of its massive rally, and 50% is a pretty standard number.

S&P Cash Bottoming last Thursday at the 50% retracement of last week's rally

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In the Dow, where the 50% retracement weighed in at 12,109, the idea was the same. Wednesday's low (which was a couple of points below Thursday's low) was just 12 points below that level, and from there, it was off to the races again.

Also calling for a solid recovery was last week's bottom in the Nasdaq 100 (NDX) and the island reversal that continued to hold throughout the week.

And not by much as the NDX held just above the island gap last Thursday -- by just 12 pennies. These are the kinds of things I look for at a bottom. For the moment, it looks like a potentially important low is in place.

But short term, it is no coincidence that this week has seen the NDX stall after filling its Feb. 5 gap. The gap got filled at 1828.80, and Tuesday's rally carried only 3 points higher. Now we have another gap down from that same area, which is another gap that gets filled and perhaps marks another top.

NDX Stalling after filling the February 5 gap

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Finally, the indicators that called a low last week have now just as loudly warned of a short-term top (Tuesday). For one, the McClellan Oscillator closed at a fully overbought +134.5, which is not the kind of thing I want to see if I am holding long.

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At the time of publication, Schiller was long SPX, Russell 2000, NDX, Dow and Financial Services mutual funds up to 35% levels, with lots of cash on the sidelines, although holdings can change at any time.

Dr. Harry Schiller is a Registered Investment Advisor with the California Dept. of Corporations. He holds a Series 7 General Securities license as well as a Series 4 Options Principal license. He has been owner and editor of the Short Term Consensus Hotline since 1988. For more information, see www.harryschiller.com. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.