Something interesting is potentially about to happen on the Russell 2000 Small Cap index, and something quite impressive has already just happened.  Can you guess what occurred?

First, let me start by saying that the Russell came just points shy last week of eeking out a new high for 2008, but was successful in reaching a new 7-month high by a little over one index point.  Given the environment and rampant (news) bearishness prevalent out there, that is a remarkable accomplishment indeed.

That being said, there’s the potential for a strange confluence of support to occur at the 720 Index level from a variety of sources.

Let’s look at the Daily and Weekly charts, and then discuss some of these potential levels:

First, we have to classify the Russell 2000 as being currently in a technical uptrend, according to the daily chart structure, as price has made a higher high (June), higher low (July) and now made a higher high (August), confirming the trend reversal up (which, again, seems odd in the context of ‘recession’ and the like).

Second, we note a confluence of support via the 200 day SMA (at 720.59) and the 50 day EMA (at 718.62).  The 20 day EMA is just above price at 727.92 – notice the doji ‘buy signal’ at support which is being threatened by today’s downward action.

Finally, although I have not drawn it on the chart, the 38.2% Fibonacci retracement from the July bottom to 764 swing high sits exactly at 719.76 (close enough to call it 720).  It’s not often that such events cluster at the same level, and when it does, it could pay to take note.

Let’s pull back to the weekly chart for more possible confluences of possible support:

Eerily enough, the 20 week exponential moving average rests at 717.94 (718) and the 200 week simple moving average rests at 719.02.  There is also a potential Gann fan that can be drawn projected down (1 point per box) from the July price high that rests just beneath 720 as well (not shown).

Whether or not the 720 level holds is of course yet to be seen, but one might be wise not to ignore this possible confluence of support that could hold.  What’s interesting (at least to me) is that the S&P 500 and the Dow appear to be breaking downwards out of a possible wedge or channel formation on the daily chart, so it’s a little odd to get such a strong potential buy signal on the Russell at the same time.  One of these patterns is likely to fail, and I’m not ready to make my prediction yet.

Let’s continue to watch this index closely for possible early clues of strength or weakness, and try to play the subsequent move that occurs off or through this interesting inflection point.