Small cap Russell 200 Index ($RUT) is very precariously positioned. At the moment it is flirting with the neck line break of a potential Head & Shoulder pattern.

The left shoulder of the pattern was formed at 833.02 in early Feb and then in mid-Feb – making a double left shoulder. The head of the pattern was formed at 847.92 on March 27th. The index then tested the neck line – 785.41 – in mid-April before forming the right shoulder at 830.10 on May 1st.

Currently it is in the process of breaking the neck-line by closing below the support for three days.

The next hurdle is Oct ’11 high of 769.46, which is resistance-turned-support. On Jan 18th, Russell closed above this high by breaking out of a large congestion area. Hence this should act as a significant support.

If this support is broken then the H&S pattern may reach its measured target of 722.90 – 8% below the neck-line support and 6.36% below May 16th close.

The H&S target falls in a major confluence area. In late Dec/early Jan, Russell formed a small Cup & Handle pattern. The low of 734.69 in late December forms a support area.

Another support area is the 78% retracement – 736.35 – of the move up from Dec 14th low to March 27th high. Another support is the 61.2% retracement – 735.29 – of the move up from Nov 25th low to March 27th high. The 50% Fibonacci retracement at 725.45 may also act as a support.

Update: Russell 2000 closed below the Oct ’11 high resistance level on May 17th. Now the downside target of the H&S pattern is in play.