The last week was incredible for the Russell 2000 with the index rallying for five consecutive trading days. The bulk of the rally came after the FOMC rate decision where the Fed left interest rates unchanged and Fed Chair Powell delivered less hawkish than expected remarks. The Russell 2000 then extended the gains into the weekend after the NFP report missed forecasts and the ISM Services PMI came lower than expected.
One may think that the stock market sees a soft landing and the fall in Treasury yields is a good thing. Unfortunately, Treasury yields fell likely because the bond market sees more weakness to come in the next few months given the softening in the labour market. So, the rally we’ve seen out of the disappointing data is likely to be misplaced and the market might correct that soon.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 last week broke above the trendline and the resistance zone around the 1720 level to extend the rally towards the next trendline around the 1780 level where we can also find the 50% Fibonacci retracement level for confluence. This is where the sellers are likely to step in with a defined risk above the trendline to position for a drop back to the lows.
We can also notice that the price is overstretched as depicted by the distance from the blue 8 moving average. In such instances, we can generally see a pullback into the moving average or some consolidation before the next move.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more closely the bearish setup around the major trendline and we can notice that the price is overstretched to the upside even on this timeframe. From a risk management perspective, the buyers would be better off waiting for a pullback into the 1720 support zone where they will find the confluence with the 38.2% Fibonacci retracement level and the blue 8 moving average.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see the incredible rally since the fakeout of the 2022 low. We can also notice that on this timeframe we have the red 21 moving average around the 1720 support zone adding an extra layer of confluence for the buyers. A break below this support would invalidate the bullish setup and give the sellers back control.
Upcoming Events
This week is pretty empty on the data front with just the US Jobless Claims on Thursday and the University of Michigan Consumer Sentiment on Friday. The market is likely to focus on the past week events and will be eager to see the US Jobless Claims on Thursday given the recent weakness in the labour market data.
