The Russell 2000 (^RUT) continues to outperform on the downside as it dropped almost five percent yesterday. The waterfall formation was temporarily suspended while the triangular formation evolved during mid-October but the downdraft has resumed.

If this index is heading for a re-test of the last "recession" lows, the 350 area was touched and retouched in 2002 and 2003.

In the near term there is some technical evidence, reinforced by the action in the Asian and European markets on Tuesday, that the massively oversold condition of major indices could be ready to give way to a tradable rally.



The S&P 500 sold off in the last hour of trading but the October 10 low is still intact.



In Asian trading the Hang Seng index (^HSI) performed a substantial reversal after Monday's 12.7% drop. The 14.3% increase in Tuesday's session failed to cancel out all of the losses from the previous session, which highlights one of those slightly counter intuitive notions regarding the arithmetic of recovery. It takes a larger percentage gain to completely reverse the erosion which occurs when a security is falling.



The CBOE Volatility Index (^VIX) closed yesterday above 80 for the first time even though the intraday high was below that seen last Friday.



Kroger (KR) is at an inflection point where yesterday's shooting star pattern highlights the strong overhead resistance from three moving averages in the neighborhood of $26.



3M (MMM) has managed to recover fairly steadily since October 10 but could face resistance from the 50-day EMA. A buy and reverse strategy at $65 may be worth consideration.



CHRW could be ready to break out from an upwards wedge pattern which has been evolving and which showed signs of occurring yesterday during the earlier part of the trading session. However, as with the previous two charts, there could be stiff resistance from overhead moving averages so profit targets on the long side should be set realistically.



Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.

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