Last Friday, the Russell 2000 surged to new highs despite a much weaker than expected ISM Manufacturing PMI. The market probably took it as good news because it reduces the chances of the Fed eventually being forced to resume tightening. In fact, the US Dollar and the Treasury yields fell across the board giving the stock market a boost. The path of least resistance remains to the upside until we start to see a deterioration in growth or the labour market cracks.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 has finally reached the cycle high and it’s now trying to extend the rally above it. This is where we will likely find the sellers stepping in expecting the double top to work out. The buyers, on the other hand, will want to see the price continuing higher to invalidate the bearish setup and increase the bullish bets into new highs.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price has been trading inside a rising channel. From a risk management perspective, the buyers will have a much better risk to reward setup around the lower bound of the channel. The sellers, on the other hand, will want to see the price breaking below the bottom trendline to increase the bearish bets into the 1920 support.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor trendline defining the current uptrend. We can also notice that we have a divergence with the MACD, which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we might see the price pulling back into the trendline where we will also find the red 21 moving average for confluence. This is where the buyers should step in with a defined risk below the trendline to position for a rally into new highs. The sellers, on the other hand, will want to see the price breaking lower to pile in and position for a drop into the major bottom trendline around the 2010 level.
Upcoming Events
This week we have lots of important events on the agenda with the release of the US labour market data and the Fed Chair Powell testifying to Congress. We begin tomorrow with the US ISM Services PMI. On Wednesday, we have the US ADP, the US Job Openings and the Fed Chair Powell speaking. On Thursday, we get the latest US Jobless Claims figures, while on Friday we conclude the week with the US NFP report.
