Last Friday's NFP report once again surpassed expectations, extending the record streak to 14 consecutive beats on the headline number. However, upon examining the report's details, they weren't as impressive. The unemployment rate experienced a notable increase from 3.4% to 3.7%, marking the largest month-over-month jump since the pandemic began. Additionally, the average workweek hours showed a slight decline, which often signifies employers reducing hours before laying off workers.
All things considered, this report offered something for everyone. The optimists interpreted the solid job growth positively, while the higher unemployment rate and soft average hourly earnings suggested less labour market tightness, potentially alleviating inflationary pressures. Some may view the lower average weekly hours worked as a return to the pre-pandemic trend.
On the other hand, the pessimists paid closer attention to the report's details rather than the headline number, recognizing that it's the trend rather than the absolute number that holds more significance.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, the Russell 2000 has finally broken out of the 3-month-long range extending the rally to the 1842 level. For the buyers a good spot for long trades would be the resistance turned support at the 1820 level with a defined stop just below it. The sellers, on the other hand, may look into fading this latest rally and increase shorts if the price returns back within the range as it would possibly turn into a fakeout.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more closely the big rally out of the NFP report. The price overextended a bit as depicted by the distance from the blue 8 moving average. Generally, in such instances, the price consolidates or pulls back to the moving average to find a new equilibrium and continue in the original direction.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see the support area where the buyers should lean onto with a defined risk just below it. In fact, we can find there the resistance turned support of the range, the red 21 moving average, the 38.2% Fibonacci retracement level and an upward trendline. If the buyers fail here, the sellers are likely to pile in more aggressively as a break below the trendline would switch the momentum to the downside.
Today, the main risk event is the US ISM Services PMI report.
- Considering the previous month's impressive performance of the S&P Global Services PMI, there is anticipation for a favourable reading in the ISM report. Should the data exceed expectations, particularly if the prices paid sub-index indicates a lower value, we could witness a rally in the Russell 2000 due to the expectations of a soft landing.
- On the contrary, if the data falls short of expectations, it might cause some weakness in the market, potentially leading to the anticipated pullback or even a complete fakeout mentioned earlier.
