This first half of the week was highlighted by big misses in the US economic data like Job Openings, Consumer Confidence and ADP. These might be the first signs that a recession is indeed on the horizon as the labour market is starting to show weakness. In fact, the market is no longer seeing the Fed hiking interest rates as the September and November probabilities dropped further and the rate cut expectations were brought forward. Nonetheless, despite the worrying data, the Russell 2000 rallied strongly as if nothing bad happened at all. There could be different reasons that range from a relief rally due to dovish expectations and lower yields or the market interpreting the softer labour market readings as good news for inflation going forward. Until we see more data, the technicals will help in managing the risk and in identifying the most probable market directions.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 bounced on the 1820 support zone and rallied all the way back to the key 1920 resistance area. We can see that we have also some confluences with the red 21 moving average and the Fibonacci retracement levels. This is where the sellers are likely to step in with a defined risk above the resistance and target the break of the 1820 support. The buyers, on the other hand, will want to see the price breaking higher to pile in even more aggressively and extend the rally towards the 2030 resistance.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that after the bounce on the support zone, the price broke out of the downward trendline and extended the rally into the resistance area. This is a very strong level that will need a lot of conviction from the buyers to give way. So, a break to the upside will be significant from a technical standpoint and will likely switch the bias from bearish to bullish.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a divergence with the MACD right at the resistance zone. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, the chances of at least a bigger pullback are high, so we might see one last spike to the upside before the drop. The last line of defence for the buyers will be the upward trendline as a break below it will give the sellers even more confirmation that a bigger move to the downside is restarting.
Upcoming Events
This week is all about the US labour market data and the recent releases haven’t been encouraging on a forward-looking basis. Today, the main event will be the US Jobless Claims report accompanied by the US PCE data. Tomorrow, we conclude the week with the US NFP and ISM Manufacturing PMI reports. It’s hard to see the Russell 2000 climbing even if the data misses as the signals for a recession are accumulating, but the stock market always finds ways to surprise even in the face of economic problems.
