Purely from a technical perspective, the iShares Russell 2000 ETF (AMEX: IWM) currently is in the midst of a recovery rally effort in the aftermath of the downleg from 85.74 to 73.95 (14%). The initial upmove of the recovery started at Monday's low of 76.43, and hit its initial high yesterday at 85.74.

It is very interesting that the plunge from yesterday's recovery high pressed the SPY to retest Monday's low, pressed the Q's and the DIA to new reaction lows this morning, but did not have a similar negative impact on the IWM. The relative strength of the IWM could be the result purely of a massively oversold index (more oversold than the other major equity market ETFs), or perhaps we can ascribe a more fundamentally positive argument to its relatively strong behavior:

If the small-cap index act well, maybe it means that the underlying economy remains ok, despite credit worries -- and strong enough, in fact, that smaller companies will be able to navigate well in the approaching "lower" interest rate environment? I don't know if that makes sense, but the price pattern carved out the IWM tells me that it is the only one of the major equity market ETFs in an advantageous technical position at this moment.

By Mike Paulenoff

Mike Paulenoff is author of the MPTrader.com (www.mptrader.com) , a real-time diary of Mike Paulenoff's trading ideas and technical chart analysis of Exchange Traded Funds (ETFs) that track equity indices, metals, energy commodities, currencies, Treasuries, and other markets. It is for traders with a 3-30 day time horizon, who use the service for guidance on both specific trades as well as general market direction

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