The latest Non-Farm Payrolls (NFP) report has surpassed expectations, continuing its impressive winning streak of 14. However, upon closer examination, we find a few less positive aspects in the report. The unemployment rate experienced its most significant increase since the pandemic, rising from 3.4% to 3.7%. Additionally, there was a slight decline in average workweek hours, which sometimes suggests the possibility of layoffs. Overall, the report presented a mix of results, leaving room for various interpretations.
The US ISM Services Purchasing Managers' Index (PMI) came in lower than anticipated at 50.3, just falling short of the contractionary threshold. The employment sub-index indicated a contraction, while the prices paid sub-index showed a notable decrease, returning to levels last seen in May 2020. As a result, the market further discounted the likelihood of additional interest rate hikes by the Federal Reserve (Fed).
In recent days, the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) surprised the markets with rate hikes, which may have influenced risk sentiment. This development has raised concerns that the Fed might follow a similar path. However, it appears unlikely considering the Fed's tendency to respond to market pricing, and we should also keep in mind that the Consumer Price Index (CPI) report has not yet been released.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, the Russell 2000 has finally broken out of the 3-month-long range and momentum buyers jumped onboard extending the rally towards the 1920 resistance zone. The price is now getting overstretched right into the resistance area, so we might see a pullback coming soon. The rally in regional bank stocks has also added fuel to the rally as the Russell 2000 has been underperforming the other major indices due to its higher exposure to the regional banking sector.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we now have a trendline that should act as support for the buyers. The 1850 area looks strong as we find the confluence of the 21 moving average, the 50%/61.8% Fibonacci retracement levels, the previous swing high level as support and of course the trendline.
The buyers should lean on this zone with a defined risk just below it and target the breakout of the 1920 resistance area. The sellers, on the other hand, will want to see the Russell 2000 breaking below the trendline to pile in and extend an eventual selloff towards the 1723 support.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more clearly the above mentioned setup with the moving averages at the moment supporting the bullish momentum. Once we start to see those ebbing and cross to the downside, then we can expect the pullback towards the 1850 area. If the rally extends into the 1920 area, we should expect strong sellers waiting there with a defined risk just above the zone to target the pullback towards the trendline and eventually a breakdown.
The US Jobless Claims report is an important event to keep an eye on today. However, it's unlikely to have a major impact on the market unless there are significant deviations from the expected numbers:
- If the report beats expectations by a large margin, it could bring a sense of cautious optimism to the markets. A strong performance in the labour market, combined with a cooling trend, might indicate a smooth transition and potentially help bring inflation closer to the target. This could be seen as a positive sign.
- On the other hand, if the report sees a big miss to expectations, it could dampen market sentiment and potentially lead to a decline in the Russell 2000. Such a scenario might revive concerns about an economic recession, which could have negative consequences for market performance.