Yesterday,
the US ISM Services PMI beat
expectations by a big margin and caused a selloff in the Russell 2000. The
market pricing for future interest rates expectations turned a little bit more
hawkish with basically a 50/50 chance of another hike in November and less
rates cuts in 2024. Last week we got a “bad news is good news” type of
reaction, while yesterday it was the complete opposite as “good news was bad
news”. It looks like the market is still trading on interest rates
expectations.
Russell 2000 Technical
Analysis – Daily Timeframe
Russell 2000 Daily
On the daily chart, we can see that the Russell
2000 continues to trade like a textbook with the price respecting almost
perfectly support and
resistance levels. The last rally into the key 1920 resistance zone got
rejected from the 50% Fibonacci retracement level
and started to roll over, extending the drop following the US data release. The
sellers should now be targeting the 1820 support zone.
Russell 2000 Technical
Analysis – 4 hour Timeframe
Russell 2000 4 hour
On the 4 hour chart, we can see that the short term
trend now is clearly bearish as the price is printing lower lows and lower
highs and the moving averages are
crossed to the downside. The sellers should enter at every pullback as long as
the current sentiment holds, and the price doesn’t make a new higher high.
Russell 2000 Technical
Analysis – 1 hour Timeframe
Russell 2000 1 hour
On the 1 hour chart, we can see that we
had a divergence with
the MACD right
at the key resistance. This is generally a sign of weakening momentum often
followed by pullbacks or reversals. In this case, the break below the trendline
confirmed the reversal and the sellers started to pile in more aggressively to
position for lower prices. Now we have another divergence, which might be a
signal for a pullback after the big drop in the past days.
The sellers might want to split their
position as the price might react both to the downward trendline and the last
lower high around the 1890 level where we have also the confluence with
the 4-hour red 21 moving average. The buyers, on the other hand, are likely to
pile in at every breakout to try to invalidate the bearish setup and position
for a break above the 1920 resistance.
Upcoming
Events
Today we will have the last important US economic
data for this week: the US Jobless Claims report. We saw just yesterday that
the market doesn’t like strong US data as that raises the chances that the Fed
might need to do more and eventually lead to a worse recession. So, if we get
good data, we should see more weakness in the Russell 2000, while bad data
should provide a relief rally. At some point though, the market should start to
worry about bad data as well.