It’s
increasingly evident that the market is taking the weaker labour market data as
good news for inflation and the soft-landing scenario. In fact, last week we
got many big misses heading into the NFP report, but the US Jobless Claims
showed that the labour market is still fine and the NFP beat
expectations. We have also got a jump in the unemployment rate, but it was
accompanied by a rise in the participation rate and the average hourly earnings
surprised to the downside, which is another good news for inflation. The market
doesn’t expect the Fed to hike anymore, so the next stop might be the rate
cuts. Historically though, the market falls when the Fed starts to cut rates
because those generally come in response to a recession.
Russell 2000 Technical
Analysis – Daily Timeframe
Russell 2000 Daily
On the daily chart, we can see that the Russell
2000 has bounced on the key 1820 support zone and
rallied all the way back to the 1920 resistance area. This will be a strong
barrier to crack for the buyers as we have also the confluence with the
50% Fibonacci retracement level.
The sellers should pile in here with a defined risk above the resistance to
target another fall into the 1820 support and eventually a break lower.
Russell 2000 Technical
Analysis – 4 hour Timeframe
Russell 2000 4 hour
On the 4 hour chart, we can see that the current
trend is bullish as the price has been printing higher highs and higher lows
and the moving averages are
crossed to the upside. The buyers will need the price to break decisively above
the resistance to invalidate the bearish setup. Once the way is clear, there is
no notable resistance until the previous high at 2020.
Russell 2000 Technical
Analysis – 1 hour Timeframe
Russell 2000 1 hour
On the 1 hour chart, we can see that we’ve
been diverging with
the MACD for
quite some time and this is generally a sign of weakening momentum often
followed by pullbacks or reversals. In this case, the price has been respecting
the upward trendline and we
can expect the buyers to lean on it again as we have also the confluence with
the red 21 moving average. A break below the trendline would confirm the
reversal and give the sellers more conviction to target the 1820 support zone.
Upcoming
Events
Today is the US Labor Day
so the markets will be closed. This week is pretty empty on the data front with just
the US ISM Services PMI scheduled for Wednesday and the US Jobless Claims on Thursday.
The market has shown strong resilience to weaker data in the past weeks and
it’s hard to tell how much bad the data needs to be to bring it down. One thing
that held pretty well is the US Jobless Claims, so much worse than expected
readings might trigger a selloff.
See also the video below