It looks like the more hawkish than expected FOMC Dot Plot last week was kind of a wakeup call for the market as it’s been selling off with almost no pullback ever since. The resilience in the economy is keeping the Fed on the hawkish camp as it wants to see more weakness in the data, especially on the labour market front. We’ve seen a huge rally since the lows back in October 2022 as the market continued to see a soft landing but even Fed Chair Powell said that it’s not his base case, although they are aiming for it. With so many bearish drivers that accumulated throughout the first half of 2023, the market might be at risk of a major fall now.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 continued to fall after breaking below the key support around the 1820 level. The target for the sellers is now the support around the 1720 level where we will likely find strong buyers stepping in with a defined risk below the support to position for a rally back into the 1820 resistance.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that if we were to see a pullback, the best place for the sellers from a risk management perspective will be the trendline where there’s also the confluence with the Fibonacci retracement levels. The buyers, on the other hand, will want to see the price breaking above the trendline to position for a rally back into the 2020 resistance.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see 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 a pullback into the minor trendline and the 38.2% Fibonacci retracement level where the sellers are likely to pile in for another selloff into the 1720 support. The buyers, on the other hand, are likely to pile in on a breakout and position for a rally into the major trendline.
Upcoming Events
Today the main event will be the US Jobless Claims report. At this point, looks like there’s not much difference if it’s strong or weak data as the former would keep the Fed hawkish and even raise the risk of higher rates, while the latter might point to a recession. Nonetheless, the last time the market rallied on weak data as it decreased the risk of further tightening and brought down Treasury yields. Tomorrow, we will see the latest US PCE data which is unlikely to change much in terms of market pricing unless we see some big surprises.
