Inside Markets — RTY Pause and SPX/NDX Support Levels

Yesterday was the fourth straight session of outsized gains for the RTY largely driven by short-covering. All rotations, regardless of their ultimate duration begin with short-covering that usually lasts 3-5 days. The last five days of gains (including last Wednesday’s anticipatory rally) generated ~12% upside and put the index ~4.5 standard deviations above its 50-day moving average. With the short-covering phase likely complete, the RTY should spend the next several sessions in a consolidation phase. During the consolidation phase, we’ll be looking for the old resistance level near 2140 to become the new support level. A brief consolidation to burn off excess followed by a continuation rally would be a strong pro-cyclical signal for markets. Any rally from support near 2140 with cross market confirmation (SX5E, copper) would be worth following.

The SPX maintains bullish technical trend momentum above 5230, which is ~6.5% below current levels. A break below 5375 (~4% below current) would be the first sign of ‘technical trouble’ for the index. Reaching oversold territory in the weeks ahead while maintaining levels north of 5375 should be considered an opportunity to add exposure. The same rule should apply to the Nasdaq 100 (NDX) which maintains its bullish technical trend momentum above 18080, which is nearly ~9% below current levels.