Fundamental Overview
Last Friday, the Russell 2000 sold off following the weaker than expected NFP report even though the details were better than the prior month. The technical break below the key support around the 2120 level eventually increased the bearish momentum.
The market has become very sensitive to soft growth and labour market data. There’s also a good argument that the market wants the Fed to deliver bigger cuts to avoid that the soft landing turns into a hard landing.
The chances for a 50 bps cut increased yesterday following the drop in Treasury yields after a weaker US NFIB Small Business Optimism Index and BoC's Macklem comments on bigger cuts with people wondering whether the bond market is signalling more economic weakness ahead.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 dropped back below the major trendline following the US NFP release. The sellers took back control and they will now target a fall into the 1993 level. The buyers, on the other hand, will need the price to rally back above the trendline to start targeting new highs.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price broke through the strong support zone around the 2120 level where we had the confluence of the trendline and the previous resistance turned support. The sellers piled in on a break lower to position for a drop into the 1993 level, while the buyers folded waiting for new opportunities. A rally back above the resistance should give the buyers some control and increase the bullish momentum into new highs.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a downward trendline defining the current bearish momentum. The sellers will likely keep on leaning on the trendline to position for more downside, while the buyers will want a break to the upside to start piling in for a break above the resistance. The red lines define the average daily range for today.
Upcoming Catalysts
Today we get the US CPI report. Tomorrow, we have the latest US Jobless Claims figures and the US PPI data. On Friday, we conclude the week with the University of Michigan Consumer Sentiment report.
