Yesterday, the Russell 2000 opened lower and finished the day negative following another hot US CPI report. This has pushed rate cuts expectations further out with the market now pricing in less rate cuts than the Fed’s dot plot. The Treasury yields skyrocketed across the board putting some pressure on the stock market. Now the market might even think that the economy is still doing great, and the Fed is not going to hike anyway, but there are now good reasons to see a bigger correction to the downside, so the bulls should be extra careful.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 has been diverging with the MACD, which is generally a sign of weakening momentum often followed by pullbacks or reversals. We broke below the key trendline yesterday which should be a confirmation for a reversal and a move towards the base of the divergent formation around the 1920 support. Before that though, the sellers will need to see the price breaking below the key 2020 support zone to increase the bearish bets into the 1920 support. The buyers, on the other hand, will likely step in here with a defined risk below the support to position for a rally back into the highs.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more closely the break below the trendline and the 61.8% Fibonacci retracement level as the market gapped lower following the US CPI release. The bias has now turned more bearish, but the buyers still have the 2020 support zone as the last line of defence.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that from a risk management perspective, the sellers will have a much better risk to reward setup around the downward trendline where they will also find the confluence of the 61.8% Fibonacci retracement level and the 4-hour 21 moving average. The buyers, on the other hand, will want to see the price breaking higher to invalidate the bearish setup and increase the bullish bets into the cycle highs.
Upcoming Events
Today we get the US PPI report and the latest US Jobless Claims figures. Tomorrow, we conclude the week with the University of Michigan Consumer Sentiment survey.
