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
Russell 2000 Daily
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
Russell 2000 4 hour
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
Russell 2000 1 hour
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: