Last Friday, the Russell 2000 rallied despite the ISM Manufacturing PMI missing expectations and falling further into contraction. The market is still trading based on rate cuts expectations as the trigger for the rally was a neutral Fed Chair Powell speech where he didn't push back against the market's pricing. The market seems to be all-in on the soft-landing trade and ignoring the weakening economic data, especially on the labour market side. The sentiment is also getting a bit bubbly right when things might really go south, so the buyers might want to be extra cautious going forward.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 broke decisively through the key resistance zone around the 1820 level. If the price continues higher, we can expect the sellers to step in around the next 1920 resistance zone with a defined risk above the level to position for a drop back into the previous resistance now turned support.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the latest leg higher diverged with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, from a risk management perspective, the buyers would have a much better risk to reward setup around the trendline where they would find the confluence with the Fibonacci retracement levels and the daily red 21 moving average.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the recent price action with the bounce on the minor trendline and the strong parabolic move soon after. Such strong impulses usually reverse at least some of the move, which is when the dip buyers pile in for a second wave. The support levels should be the previous resistance turned support around the 1820 level and the major trendline around the 1780 level.
Upcoming Events
This week we will see lots of US labour market data culminating with the NFP release on Friday. Tomorrow, we have the ISM Services PMI and the US Job Openings reports. On Wednesday, we will get the US ADP data. On Thursday, it will be the time for the US Jobless Claims figures, while on Friday we conclude the week with the NFP report.
