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
Russell 2000 DAily
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
Russell 2000 4 hour
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
Russell 2000 1 hour
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.