Fundamental Overview
The Russell 2000 has been underperforming the other major indices recently and failed to extend into new highs. The conditions for a strong rally into new all-time highs remain in place though.
In fact, Trump’s policies will be a positive driver for growth in 2025 and with the Fed remaining in an easing cycle, growth should remain positive and might even accelerate as signalled already by the Atlanta Fed GDPNow indicator.
The only bearish reason we had for the stock market was the rise in Treasury yields in the past couple of months. That’s generally bearish only when the Fed is tightening policy though not when yields rise on positive growth expectations.
Right now, the Fed’s reaction function is that a strong economy would warrant an earlier pause in the easing cycle and not a tightening. That should still be supportive for the stock market.
If the Fed’s reaction function were to change to a potential tightening, then that will likely trigger a big correction in the stock market on expected economic slowdown. For now, the pullbacks look as something healthy and opportunities to buy the dips.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 failed to break into a new all-time high and pulled back. The buyers will need to see the price breaking higher to increase the bullish bets into new highs. The sellers, on the other hand, will keep on stepping in around the recent highs to position for a drop back into the 2290 support.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a minor downward trendline defining the current pullback. This might turn into a bull flag if the price were to break above the trendline. That’s when we can expect the bullish momentum to pick up as the buyers will likely pile in more aggressively. The sellers, on the other hand, will likely lean on the trendline to position for the drop into the 2290 support.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a strong support turned resistance around the 2420 level. If the price gets there’s the sellers will likely step in with a defined risk above the resistance to position for the drop into the 2920 support. The buyers, on the other hand, will look for a break higher to start targeting new highs. The red lines define the average daily range for today.
Upcoming Catalysts
Today we conclude the week with the US NFP report.
