The Russell 2000 selloff has been remarkable with key levels being breached with no hesitation as the sentiment turned negative. The reason for the selloff is unclear as the US data has been supporting the soft-landing narrative but the sharp slowdown in the Chinese economy is expected to infect the other advanced economies and drag the global economy down. Moreover, the quick rise in long term Treasury yields is also tightening financial conditions with real yields approaching the levels last seen during the Global Financial Crisis of 2008. It’s a tough environment for sure, so the technicals will be very helpful in managing the risk.
Russell 2000 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Russell 2000 eventually breached the 1920 support zone and extended the selloff towards the next support area around 1820. This is where we can expect the buyers to step in with a defined risk below the support to target a rally into the 1920 zone. If the price breaks below the 1820 support without a pullback, then we will likely see the sellers piling in even more aggressively and extend the fall into the 1720 low.
Russell 2000 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have strong downward trendline that acted as resistance almost perfectly in many occasions. If we get a bigger pullback, the sellers will be leaning on the trendline again with a defined risk above it and target a break below the 1820 support zone.
Russell 2000 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we had a divergence with the MACD right when the price was falling into the 1820 support. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, the break above the most recent swing high points to a correction towards the trendline where we can also find the 50% Fibonacci retracement level. In fact, we can expect the buyers piling in here with a defined risk below the level to target the trendline. If the price falls back below the swing level though, the sellers are likely to jump onboard and extend the fall into the 1820 level.
Upcoming Events
This week is pretty empty on the data front with just the US PMIs scheduled for Wednesday and the US Jobless Claims for Thursday. We seem to be at a point where good news is bad news because of the Fed’s stance and bad news is bad news because the slowdown in global growth will lead to a recession in many countries included the US. Remember also that it’s the Jackson Hole Symposium week, so we will get comments from Fed officials again and especially Fed Chair Powell who is scheduled to speak on Friday.
See also the video below:
