— David Zarling (@AdaptivCharts) February 5, 2020
Today’s Chart of the Day was shared on Twitter by David Zarling (@AdaptivCharts). It’s a daily candlestick chart of the Small-Cap Russell 2000 ETF, $IWM. The chart serves as a textbook example of a concept in technical analysis known as the principal of polarity, in which former resistance becomes support. During the most recent bout of volatility, The Russell 2000 pulled back over 5%, which was more than the rest of the major indices. Relative weakness in the Russell 2000 tends to spook chart watchers as Small-Caps are often thought of as a barometer for risk appetite. However, the index was able to find support at a former resistance level. This level acted as a brick wall for the majority of 2019. After numerous failed attempts, price finally broke out in December. As David points out, it’s quite common to see price test former resistance after a breakout like this. The fact that the index was able to bounce here is yet another feather in the hat for the bulls. The next test for the Russell 2000 will be to see if it’s able to join the other major indices at all-time highs.