Fundamental
Overview
The Russell 2000 continues
to remain under pressure with the market now down more than 18% from the
all-time highs. The catalyst of the recent selloff was back on February 21st
when we got the weak US PMIs coupled with a new 30-year high in the long term
inflation expectations in the University of Michigan Consumer Sentiment survey.
The market started to fear
that in case we get a slowdown, the Fed might not be fast enough in cutting
rates amid the inflation constraint and eventually worsen the economic pain.
Moreover, the uncertainty around Trump’s tariffs add to those expectations of a
slowdown in growth and potentially higher inflation in the short-term.
We can argue that Trump
chose the worst time possible to start his trade war as the context is
different from his first term when inflation wasn’t a problem. In fact, the
market might have swallowed his trade war if it wasn’t for the inflation
constraint that limits the Fed’s reaction.
As Dario Perkins from TS
Lombard noted, when you want to do fiscal consolidation and avoid a recession,
you need help from a dovish monetary policy. This help is constrained at the
moment due to inflation being above the target and uncertainty about higher
inflation expectations.
Today, we have the US CPI
report and the market will need soft figures to trigger a relief rally,
otherwise in case of hot data we could be up to much more pain ahead.
Russell 2000
Technical Analysis – Daily Timeframe
Russell 2000 Daily
On the daily chart, we can
see that the Russell 2000 is trading near a key support around the 1993 level. This
was the upper bound of the range created in 2022 that lasted almost two years. This
is where we can expect the buyers to step in with a defined risk below the
support to position for a rally into the 2172 level next. The sellers, on the
other hand, will want to see the price breaking lower to increase the bearish
bets into new lows.
Russell 2000 Technical
Analysis – 4 hour Timeframe
Russell 2000 4 hour
On the 4 hour chart, we can
see that we have a downward trendline defining the bearish momentum. The
sellers will likely lean on the trendline to keep pushing into new lows, while
the buyers will look for a break higher to increase the bullish bets into the
2172 level next.
Russell 2000 Technical
Analysis – 1 hour Timeframe
Russell 2000 1 hour
On the 1 hour chart, we can
see that on an intraday basis, we have a strong resistance zone around the 2050
level. That’s where we can expect the sellers to step in to position for
further downside, while the buyers will look for a break above the resistance
and the trendline to increase the bullish bets into new highs. The red lines
define the average daily range for today, although they will
likely be unreliable today given that we get the US CPI.
Upcoming
Catalysts
Today we have the US CPI report. Tomorrow,
we get the US PPI data and the US Jobless Claims figures. On Friday, we
conclude the week with the University of Michigan Consumer Sentiment report.