On the daily chart below for the Russell 2000, we can see that the price has bounce from the key 1731 support level as the US GDP showed a better than expected economic picture under the hood and Jobless Claims beat expectations after several weeks of misses.
This latest rally though has found some headwinds yesterday as the ISM Manufacturing PMI came out better than expected and the inflation and employment sub-indexes returned back into expansion. As long as inflation keeps falling and the labour market remains healthy, the stock market can rise, but this shouldn’t be true with a stubbornly high inflation.
On the 4 hour chart below, we can see that after breaking out of the ascending triangle, the price fell to the key 1731 support level before bouncing. There’s this big range between the 1731 support and the 50% Fibonacci retracement level that both buyers and sellers seem to not being able to break without a big fundamental change. This week is packed with many top tier economic events like the ISM PMIs, the FOMC and the NFP. It will be interesting to see if this is the week that will offer the breakout.
On the 1 hour chart, we can see that the price has been diverging with the MACD falling to the 1731 support. This is generally a signal of weakening momentum and it’s often followed by pullbacks and reversals. We got a reversal on that support, but yesterday we had another divergence that was followed by a pullback to the orange 50% Fibonacci retracement level.
The buyers piled in there and they are likely targeting a return to the 1820 resistance. The sellers, on the other hand, will want to see the price to break below the orange 50% Fibonacci level to confirm a reversal and target another fall to the 1731 support.
