The Russell 2000 (“$RUT.X” in TD Ameritrade and “^RUT” in Yahoo! Finance) has been bouncing around a trading channel this entire year. What is now a ceiling for this price on the chart was the floor for the second half of last year. I won’t believe this channel is broken (in either direction) until we get two or more consecutive closes above or below the lines I drew around $650 and $750. RUT closed at $716 on Friday, August 1st, but just broke a down trend line of lower highs two weeks ago. That break held support this past week at the same price range that has acted as intermediate support for most of the year.
Staying above that thin line I drew below around $690 means the Russell 2000 is comfortably in the middle of its trading channel and makes it harder to pick a direction. The biggest bullish factor is that it closed above the 10 and 20 week moving averages this week. If RUT can repeat that upward move or at least stay flat, it could take run all the way up to the top of its trading channel or at least to the 50 week moving average around $735 as of Friday. Once the Russell 2000 hits that top range and we can see that it’s stalling, I believe that will be a good time to sell some naked calls or buy some puts to profit as it comes back down.
with tuesday’s DOW up 331 back to 11600 area, i agree that all the indexes are showing some channeling (in this case 11000 to 11600, so at top) and it is hard to pick directions. i like how you forecast the index to determine when you want to sell puts.