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The Russell 2000 is one of the averages that has moved to new all-time highs in 2013, so I wanted to look at the monthly and weekly analysis of the iShares Russell 2000 (IWM). At the end of May 2009, the monthly OBV (line 1) had moved back above its WMA, which was the start of an 11-month rally. The OBV did confirm the April 2010 highs and then turned lower.

Over the next four months, the OBV dropped back to test its rising WMA (point a), which was  a bullish setup. By the end of September, the OBV had turned higher, signaling that the uptrend had resumed. From the August low, IWM rallied for another eight months with only one lower monthly close.

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The OBV made a new high in April 2011, but IWM made a marginal new high in May before closing lower. The OBV broke its uptrend, line b, in June and dropped below its WMA in July 2011 (line 2). The OBV made lower lows for the next three months. The OBV was weaker than prices on the decline as it dropped below the 2010 lows while IWM did not. At the end of November 2011, the OBV formed a positive divergence, line d.

Though IWM rallied, the volume was not impressive as the OBV just briefly made it above its WMA in March (see yellow circle) before reversing. It did hold its uptrend, line d, and by the end of September 2012, the OBV was back above its WMA.

The OBV tested the WMA in October (another zigzag) and then broke through resistance, line c, at the end of November (line 3). This indicated that the January effect, where small caps outperform, was going to be followed in 2012-2013.

The weekly OBV moved above its WMA on July 30, 2010 (see vertical line), and then as IWM dropped back to test the lows, the OBV was stronger (circle e) as it stayed above its WMA. At this time, the monthly OBV was positive from May 2009. The OBV shows a bullish uptrend into the middle of February 2011 when it peaked.

IWM continued higher until early May, but the OBV dropped below its WMA and formed a trading range. The OBV surged to marginal new highs in July but IWM was lower and the monthly OBV dropped below its WMA at the end of July. This would have allowed for an exit before the debt ceiling selling reached its full panic mode.

The weekly OBV dropped below its WMA and support (line f) as IWM was breaking its corresponding support. The OBV made lower lows in November, but IWM did not, and by the second week of January, the OBV was back above its WMA. This coincided with the rally into the late March highs. On the ensuing eight-week correction, IWM held its support just below $74 but the OBV formed higher lows.

Two weeks after the lows, the OBV moved back above its WMA and then soon moved above the previous highs (line g) at the end of June. IWM rallied to a new high of $86.96 in the middle of September 2012, but by early October, the OBV was back below its WMA.

As the monthly OBV moved back above its WMA at the end of November, the weekly OBV was below its WMA but above its uptrend, line h. By December 14, the weekly OBV was above its WMA, confirming the January effect. By early January, the weekly OBV had moved above its resistance at line i.

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This method also works for commodities, as well as individual stocks. One of the most volatile stocks in the past few years has been Netflix Inc. (NFLX). The monthly chart shows the trading range that developed from 2004 through early 2009, line a.

The OBV surged in 2005 but then peaked in 2006 and formed a downtrend (line b) over the next three years. This downtrend was broken in February 2009, line 1. The next month, NFLX closed above its monthly resistance at $41.79, line a, and began its dramatic rally.

By the middle of 2010, one was able to draw a clear uptrend in the OBV, line c. At the end of August 2011, the monthly OBV dropped below its WMA as NFLX closed at $235. The next month, the uptrend in the OBV was also violated.

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