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Crude Oil Emerges As Commodity Leader -- For Now


But keep your eye on market-moving crude oil inventories today.


Chart of the Day: Russell 2000

Click to enlarge

  • Since the March 8 lows, the Russell 2000 is up 85%, outpacing the NASDAQ (81%), S&P (69%) and Dow Industrials (64%). This is somewhat surprising and counterintuitive, since the dollar began its descent at the same time and I'd expect large multinational companies to benefit most from a weaker currency.

  • From September through November, both the Russell and NASDAQ stalled out as money rotated into the Dow and S&P names. Since December 1, however, almost in perfect lockstep with the greenback's rebound, the Russell (and the NASDAQ) has rallied nicely to set new 2009 highs and resume its leadership.

  • In terms of Elliott Wave count, the Russell 2000 appears to be in the latter stages of wave C of an ABC corrective move which began in March at the end of the previous five wave primary move lower.

  • The upside target for this ABC correction based on a 100% Fibonacci price extension is 660.25. That roughly corresponds with a 61.80% Fibonacci retracement of the 2007 -- 2009 bear market in the Russell 2000 (the exact number for that retracement is 662.94). The 660.25 number also closely corresponds with the horizontal line created by the low weekly close of 660.20 from March 2008 (see yellow oval in chart).

  • Based on this, I'd expect the rally in the Russell 2000 to stall out at a maximum price range of 660-663 (about 5% higher from current levels -- not enough upside to lure me into any long trades now).

Strategy: Be very careful about long entries into the small-cap index proxies as there may not be much left in this move higher; if the Russell 2000 tests the 660-663 resistance area, I'd then advocate taking profits on existing long positions and/or establishing new short-positions on the Russell 2000 with stops in place on a weekly close above 665.

No positions in stocks mentioned.

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