The selloff that started at the beginning of August is starting to show signs of weakness. Although nothing changed fundamentally, the Russell 2000 started to rise as the market was just probably overstretched. This looks more like a pullback as the miss in yesterday’s US PMIs doesn’t support the bullish case.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 has bounced around the key 1820 support zone and pulled back into the blue 8 moving average. When the price gets too far from the 8 moving average, we can often see these type of pullbacks as the market retraces from overstretched levels. The buyers may be targeting a rally all the way back to the 1920 resistance.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we a nice bearish setup with the confluence of the trendline and the 38.2% Fibonacci retracement level around the 1886 level. This is where we can expect the sellers to pile in with a defined risk above the trendline to target a break below the 1820 support.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we had a divergence with the MACD right when the price was approaching the key support zone. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, the target should be the last swing high where the divergence started, which is right around the 38.2% Fibonacci retracement level. If this setup fails, the buyers will extend the rally towards the 1920 resistance, which will be the last line of defence for the sellers.
Upcoming Events
Today we will have the latest US Jobless Claims report where the market will want to see if the labour market is still holding or starting to weaken. Strong data may cause some hawkish repricing in expectations and it’s unclear if the market will take it as good news because of the resilient labour market or bad news because the Fed will keep at it. Weak data should be more straight forward as it’s likely to cause recessionary fears given the yesterday’s PMIs and send the market lower. Tomorrow we will hear from Fed Chair Powell who is set to speak at the Jackson Hole Symposium, although the expectations are for him to just repeat their data dependency and keep all the options on the table.
