Last week, the Fed hiked the interest rates by 25 bps as widely expected keeping everything unchanged. Fed Chair Powell reiterated their data dependency and kept all the options on the table. The economic data since the FOMC meeting has been pretty solid and the labour market indicators keep on running hot. This week we got a selloff that began with the rating agency Fitch downgrading US credit rating to AA+ from AAA and then extended further as the US ADP report came in hot again.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 eventually reached the key resistance zone around the 2020 level and rejected it. The price pulled back into the red 21 moving average where we saw a bounce as the buyers stepped in for another rally towards the resistance targeting a breakout.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we had a divergence with the MACD coming into the resistance zone which was a sign of weakening momentum that is generally followed by pullbacks or reversals. The price is now at a strong support zone around the 1960 level where we are likely to see the buyers piling in with a defined risk below the zone to target another rally and eventually a breakout. The sellers, on the other hand, will want to see the price breaking lower to pile in more aggressively and extend the selloff into the 1920 support.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the sellers recently stepped in around the 1980 level where we have the 38.2% Fibonacci retracement level and a previous swing level. We are likely to see some consolidation between the 1960 support and 1980 resistance awaiting the NFP report. If the price breaks above the 1985 level though, the buyers will have a confirmation of the bounce and should pile in more aggressively to target the breakout.
Upcoming Events
Today, all eyes will be on the US NFP report. The Fed will see another NFP report before the next meeting so this one won’t decide what they are going to do but it can change market expectations, nonetheless. It’s hard to see what the market is going to do with this data, but a strong report should weigh on the Russell 2000 as the market would expect the Fed to remain hawkish and weak readings are likely to cause a selloff as the market may start to fear a recession on the horizon. The technicals here should be more helpful to manage risk and position in line with the flow.
