Last week, the Russell 2000 Index came under pressure due to geopolitical fears and a general sense of risk aversion. The latest developments have seen Israel retaliate against Iran, but the latter has played down the airstrikes. This episode could be behind our backs, although it would be worth monitoring if it were to become worrying again. On the macro front, the Fed’s rhetoric has become more hawkish, particularly in the latter part of the week, as inflation growth appears to have stalled. Overall, last week saw many bearish catalysts weighing on the market. So we will likely need some positive data on the inflation front this week to reverse the trend.
Russell 2000 Technical Analysis – Daily Timeline
Russell 2000 Daily
On the daily chart, we can see that the Russell 2000 has broken through the key support zone around the 2020 level, extending the sell-off to new lows, with the price now trading near the key 1920 support zone. Buyers will likely intervene around these levels with a set risk below support to position themselves for a rally to new highs. Sellers, on the other hand, will want to see the price fall to increase bearish bets until the next support at 1820.
Russell 2000 Technical Analysis – 4 Hour Time Frame
Russell 2000 4 hours
On the 4-hour chart we can see that from a risk management perspective, sellers will have a much better risk of rewarding the setup around the downtrend line where they will also find the confluence of the retracement level of Fibonacci at 50% and red movement 21. average. Buyers, on the other hand, will want to see the price rise to invalidate the bearish setup and increase bullish bets towards a new cycle high.
Russell 2000 Technical Analysis – 1 Hour Time Frame
Russell 2000 1 hour
On the hourly chart, we can see that the recent price action has formed what looks like a descending wedge. Additionally, price diverges with the MACD, which is usually a sign of weakening momentum, often followed by pullbacks or reversals. This could be a good signal for a trendline reversal. If the price were to break above the upper boundary of the wedge, we can expect buyers to pile in and aim for a rally to new highs. Sellers, on the other hand, will likely rely on the upper boundary of the wedge to position themselves for a fall into the 1920 support zone.
Events to come
This week is a bit empty on the data front with only a few notable releases. We start tomorrow with the US PMIs. On Thursday we will receive first quarter US GDP and the latest US jobless claims figures. On Friday, we conclude the week with the US PCE report.
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