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Pattern in small-caps sounds a bullish signal

By Mark DeCambre

A bullish chart pattern in the small-cap Russell 2000 index suggests that the broader market may have a lot more room to run beyond its record levels, according to Asbury Research.

John Kosar, chief market strategist at Schaumburg, Ill., Asbury Research told MarketWatch that since the Russell 2000 reached its lowest point back in Feb. 11—along with most assets perceived as risky—it has checked a number of boxes that technical strategist follow to confirm a change to a long-term bullish trend.

Back in late May, the Russell 2000 became the first of the widely watched broader market indexes to close above its April high until it was chopped down by the U.K.’s June 23 referendum to abandon its membership in the European Union, which rocked global markets.

However, it has rebounded sharply, and is up 10% from its closing low of 1,088.00 reached on June 27, the Monday after Brexit. The snapback renewed its uptrend begun March 2009, and pushed it back above its 200-day moving average, Kosar said.

“We broke the fresh lows so as soon as we stopped the lows that indicated a major change to one of it being negative had occurred,” Kosar told MarketWatch.  “To me this is a bullish sign come off a sizable correction off the 2015 highs, he said.  How high can the Russell 2000 go? Kosar forecasts about a 16% rise to 1,400.

Kosar said expanding assets in the exchange-traded fund, the iShares Russell 2000 ETF IWM, +0.13% also is a positive sign for stock-market momentum. He said some $28.4 billion has been invested in the ETF as of July 12—the most assets invested in 2016.

Similar patterns in securities like Caterpillar Inc. CAT, -0.14%  and the emerging-markets ETF iShares MSCI Emerging Markets ETF EEM, +0.07% which are positively correlated with the broader stock market, also point to a potential up swing for Wall Street, Kosar said.

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Asbury Research subscribers can access the reports and accompanying charts that were used as a source for this article by logging into the Research Center.