Simplistic technical analysis for Russell 2000 (November 2nd 2014)

In my last week's post I had speculated that Russell 2000 would touch 1160 and then a reversal would take place. However, this week, against all expectations Russell continued to move higher beyond 1160 and closed beyond 1173.

Lets see if we can assess the next moves for the index for the coming week.

I am using the following indicators

We are looking at 6 month candlestick chart for Russell 2000 on Yahoo stocks. I have added the following indicators to the chart.

1. Bollinger Bands at 20 days and 2 Standard deviation
2. 20, 50 and 200 day Simple Moving Averages
3. MACD indicator for 26, 12 and 9

I have also added a fourth indicator

4. 14 day Money Flow Index

Last week, the Russell had ended the week at 1118.82 and 1160 seemed far away. In one week the index climbed more than $55 to end at $1173.51. There was also a Breakaway gap on October 30th where the stock went from a previous day close of $1155 to next day open of $1169 (see item 6 on chart above), indicating some market news that raised market expectations. Whether it was the Feds announcement or Japanese announcing their own quantitative easing, or a combination is difficult to tell.

Looking at the MACD indicator, it has already touched 10.35 (item 1 in chart above). I was expecting a reversal above 7.35 indicated in my last week's post. The market is in overbought territory but is not done. So where do we go from here?

If we look at Money Flow Indicator (MFI), which is a lead indicator that combines 14 day price and volume movements, lets look back to beginning of October (item 2). It was a downward trend, but the MFI indicated an upward trend. It implied that a reversal would happen at some point. The stock fell further and then reversed.

However, if we look at current MFI (item 3), it is at 77 odd. While it supports that the stock is overbought, a value above 90 would have indicated unsustainable overbought levels. The present value does not indicate so. To me, this means that the upward trend will continue till we see a reversal or flattening out on the MFI. If we look at previous 6 month highs (item 5) we can see that MFI flattened first while price continued to rise a little bit before the trend reversed (item 7). MFI was at 72 odd when it reversed in that particular instance.

Again, coming to my amateurish predictions, I suspect the following:

1. The start of week the uptrend will continue to push index higher.

2. Russell 2K will continue to test previous highs at 1183 (item 4) and even 1208 (item 5).

3. Perhaps by end of next week we will see the beginning of the reversal.

Once again, I am learning technical analysis, so please do your own research before making any decisions.