Russell 2000 Technical Analysis – Small caps stocks continue to outperform

Fundamental
Overview

This week has been pretty
boring all around as the lack of catalysts kept the price action confined in a
tight range. The market is waiting for the key economic releases next week as
we will get the ISM PMIs and lots of US labour market data including the NFP
report.

As a reminder, the Fed is
now very focused on the labour market as Fed Chair Powell said that they will
not welcome any more weakness and will do everything they can to keep it
strong. Therefore, the data will decide whether the central bank will go with a
standard 25 bps cut in September or take a more aggressive approach with a 50
bps cut.

In today’s context though,
weaker labour market data and the prospect of a 50 bps cut might not be enough
to lift the stock market and could actually lead to more downside on
recessionary fears, so that’s something to keep in mind.

Russell 2000
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that after the spike higher on the dovish Powell’s speech, the Russell 2000
this week has been pulling back on the lack of more catalysts. Nonetheless, the
trend is still skewed to the upside, so the momentum buyers keep on stepping in
around key levels on the lower timeframes. The sellers will need to see the
price breaking below the 2100 level to start targeting new lows and switch the
bias from bullish to bearish.

Russell 2000 Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that we had a strong support zone around the 2185 level where we had also
the confluence
of the 38.2% Fibonacci
retracement level and the trendline.
The buyers stepped in with a defined risk below the trendline to position for a
rally into a new cycle high. The sellers, on the other hand, will want to see
the price breaking below the trendline to position for a drop into the 2100
level next.

Russell 2000 Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we got a break of the downward counter-trendline today. The buyers
will likely increase the bullish bets around these levels to position for a
rally into a new high. The sellers, on the other hand, will want to wait for
the price to break below the upward trendline before positioning into more
downside. The red lines define the average daily range for today.

Upcoming
Catalysts

Today we get the latest US Jobless Claims figures, while tomorrow we conclude
the week with the US PCE report.