The Russell 2000 Is at it Again

Yes, I know you are getting tired of hearing about how great the Russell 2000 (RUT) is in calling market turns. But until I see this maligned and largely ignored index getting the attention (and love) it deserves, I have no choice but to bring it to everyone's attention.

Last Friday, while everyone was fretting about the grim numbers from AIG (AIG - commentary - Cramer's Take) (and the related 10% meltdown) and the new highs in oil, the Russell 2000 again went under the radar and called the bottom.

Of course, when I say it "called the bottom," I am not suggesting it sounded the horn or rang a bell as the market put in its lows. But I am saying that if you were paying attention to this index, you would have known that the market was setting up for a rally.

The Russell 2000 bottomed on Friday morning right at the opening 714 level. What was noteworthy is that it happened just pennies below Thursday's low of 714.05, and yet, pennies above the April 30 low of 713.64.

As you can see on the chart below, there have been multiple attempts to crack that support, which has held on every occasion, and held again on Friday. That's not to say that the Russell 2000 was the only index to hold at recent support. In fact, the S&P did the same thing (see the second chart).

But here's where it gets interesting: During the afternoon selloff to lower lows in the Dow and SPX, the Russell 2000 held well above the morning low and continued to firm up going into the close. At the bell, with the Dow, S&P (cash and futures), Nasdaq Composite and NDX all down on the day, the Russell 2000 showed a gain. Not a big gain, but it closed positive by a half-point.

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At the time of publication, Schiller was long Russell 2000, SPX, Dow mutual funds up to 40% invested, and short June QQQQ out-of-the-money calls, 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.