Last week, the US CPI came basically in line with expectations, but the good news is that the Core M/M reading once again printed at 0.2% or 0.16% unrounded. The not so good news is that the US Initial Claims spiked higher coming at 248K vs. 230K expected, but Continuing Claims remained strong. We have already seen Claims spiking higher in the past months, but the overall picture remains positive for now. The long-term inflation expectations in the University of Michigan report ticked lower, so on the data side the week was positive. Nonetheless, the Russell 2000 finished the week negative and it’s hard to find a clear reason other than a technical pullback or global growth worries.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that after getting rejected from the key 2030 resistance zone, the Russell 2000 fell all the way back to the 1920 support zone where we can also find the 50% Fibonacci retracement level. This is where the buyers should start to pile in with a defined risk below the level and target the 2030 resistance zone again and ultimately a breakout. The sellers, on the other hand, will want to see the price breaking lower to pile in even more aggressively and extend the selloff into the next support at 1820.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we had a divergence with the MACD right when the Russell 2000 was approaching the key resistance zone. This is generally a sign of weakening momentum often followed by pullbacks or reversals. If the price bounces from this support zone, then we can say that it was just a pullback, but if it breaks lower and runs, we will be in front of a reversal and there will be lots of room to the downside.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have another divergence right at the support zone. This is another good signal for the buyers that the bearish momentum is weakening, and we might see a bounce from here. From a risk management perspective, this is a great place for the buyers to start piling in, but more conservative buyers may want to wait for the price to break above the trendline to pile in and then increase the bullish pressure as soon as the price breaks above the 1965 resistance.
Upcoming Events
This week is a bit empty on the data front and the lower summer liquidity might trigger false moves. On Tuesday we will see the latest US Retail Sales report where the market is likely to react positively in case of a beat and negatively in case of a miss. The US Jobless Claims on Thursday is likely to be the main event of the week as another big miss may cause recessionary fears and weaken the market even more, while strong data should give the Russell 2000 some support.
See also the video below:
