Despite good economic data like lower core inflation, stable jobless claims, lower inflation expectations and strong consumer spending that support the soft-landing narrative, the Russell 2000 just keeps on falling with very shallow pullbacks. One of the main reasons might be the non-stop rally in long term yields and real yields as it makes financial conditions tighter ultimately weighing on the stock market. The good economic data might also be interpreted as bad news because inflation might remain higher for longer requiring more tightening from the Fed. There’s no easy answer at the moment, so the technicals should be more helpful.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 has eventually broken the key 1920 support zone and extended the selloff towards the next key support at 1820. The price at the moment is a bit overstretched as we can see by the distance from the blue 8 moving average. Generally, we can see the price entering a consolidation or pulling back into the moving average before the next move. In this case, we might get a retest of the broken support now turned resistance.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a very strong resistance now around the 1900 level as we can find the previous support turned resistance, the trendline, the Fibonacci retracement levels and the red 21 moving average. This is where we should see the sellers stepping in with a defined risk above the resistance to target the 1820 support. The buyers, on the other hand, will want to see the price breaking above the resistance to get the conviction to target the 2020 level again.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the bearish setup and the possible rally into the trendline. A lot will depend on today’s economic data, so keep an eye on that.
Upcoming Events
The only top tier economic indicator left is the US Jobless Claims report scheduled for today. The market has been weak in the past days even in the face of good data, so we might be at a point where bad data causes recessionary fears and good data leads to higher rates expectations. It’s possible that the market is more likely to react positively to data that it’s not too cold nor too hot, so big deviations might be bearish either way.
