Fundamental Overview
The Russell 2000 consolidated around lows after falling sharply after the FOMC decision in December, as the market saw it as more hawkish than expected.
The Fed continues to place great importance on the progress of inflation in order to continue cutting interest rates further, as the Fed’s Waller pointed out this week. So the market is waiting for more data to decide what the Fed will do next.
Next week’s soft CPI report is likely to trigger a strong reaction in the markets, especially given the rapid rise in Treasury yields over the past few months. This should support the stock market and lead to higher gains. Conversely, another hot CPI won’t help and could trigger another selloff.
Today we have the US NFP report and while the CPI will have more of an impact on interest rate expectations, it will still be a market moving event, especially if we get large deviations from expected numbers.
Right now, the market would like to see soft data, but not too soft. A very bad or very hot report could add more pressure to the market. Watch for wage growth as well, as the Fed’s Bowman recently emphasized that it remains above the pace consistent with their inflation target.
Russell 2000 Technical Analysis – Daily Time Frame
Russell 2000 Daily
On the daily chart, we can see that the Russell 2000 is consolidating below the key 2300 level, and the price is now approaching a major trendline. If price gets there, we can expect buyers to jump in with defined risk below the trendline to position themselves for a rally to a new all-time high. Sellers, on the other hand, will want to see the price decline to increase bearish bets to 1993 levels.
Russell 2000 Technical Analysis – 4 Hour Time Frame
Russell 2000 4 hours
On the 4-hour chart, we can see the price movement more clearly in the range between the resistance at 2300 and the support at 2220. The market is clearly waiting for a catalyst to push in either direction. US NFP and CPI reports will be key events for market participants.
Russell 2000 Technical Analysis – 1 Hour Time Frame
Russell 2000 1 hour
On the hourly chart, we can see that we have some minor support and resistance levels in this time frame. Buyers will want to see price break above the 2255 level to start targeting resistance at 2300, while sellers will look for a break below the 2235 level to extend the decline into the main trendline. The red lines define the average daily range for today.
Upcoming Catalysts
Today we conclude the week with the US NFP report.