Yesterday, the US ISM Services PMI beat expectations by a big margin and caused a selloff in the Russell 2000. The market pricing for future interest rates expectations turned a little bit more hawkish with basically a 50/50 chance of another hike in November and less rates cuts in 2024. Last week we got a “bad news is good news” type of reaction, while yesterday it was the complete opposite as “good news was bad news”. It looks like the market is still trading on interest rates expectations.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 continues to trade like a textbook with the price respecting almost perfectly support and resistance levels. The last rally into the key 1920 resistance zone got rejected from the 50% Fibonacci retracement level and started to roll over, extending the drop following the US data release. The sellers should now be targeting the 1820 support zone.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the short term trend now is clearly bearish as the price is printing lower lows and lower highs and the moving averages are crossed to the downside. The sellers should enter at every pullback as long as the current sentiment holds, and the price doesn’t make a new higher high.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we had a divergence with the MACD right at the key resistance. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, the break below the trendline confirmed the reversal and the sellers started to pile in more aggressively to position for lower prices. Now we have another divergence, which might be a signal for a pullback after the big drop in the past days.
The sellers might want to split their position as the price might react both to the downward trendline and the last lower high around the 1890 level where we have also the confluence with the 4-hour red 21 moving average. The buyers, on the other hand, are likely to pile in at every breakout to try to invalidate the bearish setup and position for a break above the 1920 resistance.
Upcoming Events
Today we will have the last important US economic data for this week: the US Jobless Claims report. We saw just yesterday that the market doesn’t like strong US data as that raises the chances that the Fed might need to do more and eventually lead to a worse recession. So, if we get good data, we should see more weakness in the Russell 2000, while bad data should provide a relief rally. At some point though, the market should start to worry about bad data as well.
