E-mini Russell 2000 Index (TF) Futures Technical Analysis – October 15, 2014 Forecast

Unlike the other major indices which posted inside moves, the December E-mini Russell 2000 Index posted a higher-low, higher-high and higher-close on Tuesday, making 1038.60 a new minor bottom.

Since the Russell is often the first market to break from a high, it follows that it usually is the first index to rally from a low. This is because near a top, investors use the Russell for hedge protection in case the overall market begins to weaken. When the index reaches a potential bottom, these same investors begin to cover their short Russell positions. This could be taking place right now.

On Tuesday, the index regained the previous bottom at 1057.60. If this strength continues then those traders who shorted the weakness under this level last week and early this week may be forced to cover, triggering a strong short-covering rally.

Holding above the long-term downtrending angle at 1170.20 will be another sign of short-covering.

The short-term range is 1101.20 to 1038.60. The pivot formed by this price at 1069.90 is controlling the short-term direction of the market. Overcoming this level today is likely to lead to more short-covering.

Other potential upside targets include downtrending angles at 1077.80 and 1089.50.

If sellers successfully defend the upside then the market will reverse back down. Taking out 1038.60 could lead to an acceleration to the downside since the daily chart indicates there is plenty of room to fall since the next major bottom is 1017.70.