The Russell 2000 Index (RUT) remains in a fairly steep downtrend measured by its 200, 100, and 50-day moving averages. As a result of the 'big' -1.5% decline on Thursday, RUT also crossed below its 20, 10, and five-day averages. With a closing price of 705.72, let us turn to history.
Q: How has the Russell 2000 Index performed in the past when while trading below its 200-day average between February and June, it experiences two rallies followed by two declines when the most recent decline is a 'big'* decline?
* A big decline is defined as a percentage decline of more than one standard deviation below the average one-day percentage change measured over the last 30 trading days.
A: According to the eight previous occurrences of this event, omitting repeat occurrences within 10 trading days, RUT has shown a strong bearish edge that peaks one trading day after the event. Thus, the projected date for the peak of the bearish edge relative to the current event date (Thursday, 28 February 2008) is Friday, Feb. 29, 2008.
RUT declines in 100% of the cases (8 of 8) by an average of -1.1% relative to the close on the event date. The overall return of the eight cases is -1.1%, which, based on the close of RUT on the event date (705.72), provides a target price of 697.96.
To view a close representation of this event in EventEdge, click HYPERLINK "http://www.markethistory.com/content/events/indexes/chart.html?ticker=RUT&events=quarter,MyUp3,MyUp2,MyDown1,DownL0,BelowSMA2000" here.
Ryan Soudan owns put option contracts on SPY, an ETF designed to track movement in the S&P 500.
If you would like to see more details of this historical edge, go to www.markethistory.com
Ryan Soudan is an analyst with MarketHistory.com.
