Will This Russell 2000 “Doji Star” Candle Spell Trouble?

The Russell 2000 (INDEXRUSSELL:RUT) has traded lower since early March when it hit new all-time highs.

This recent bout of weakness assisted in forming a “doji star” candle on the monthly chart (see point 2 below). And note that this doji star candle formed near rising channel resistance.

So why is this important?

A doji star candle is a sign of indecision in the market. The last time that a doji star candle formed at the top of channel resistance (see point 1 below), the Russell 2000 declined 20 percent.

The past isn’t necessarily a predictor of the future, but if further weakness takes place following the doji star, it may represent an important high. Or at a minimum, important resistance.  Since this is a monthly chart, it will take a month or two to determine it’s significance.

Russell 2000 “Montly” Chart – “Doji Star” reversal taking place?

Thanks for reading.

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