Russell 2000 Technical Analysis – Dead cat bounce or the start of a rally?

selloff that started at the beginning of August is starting to show signs of
weakness. Although nothing changed fundamentally, the Russell 2000 started to
rise as the market was just probably overstretched. This looks more like a
pullback as the miss in yesterday’s US PMIs doesn’t
support the bullish case.

Russell 2000 Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the Russell
2000 has bounced around the key 1820 support zone and
pulled back into the blue 8 moving average. When
the price gets too far from the 8 moving average, we can often see these type
of pullbacks as the market retraces from overstretched levels. The buyers may
be targeting a rally all the way back to the 1920 resistance.

Russell 2000 Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that we a nice
bearish setup with the confluence of the trendline and the
38.2% Fibonacci retracement level
around the 1886 level. This is where we can expect the sellers to pile in with
a defined risk above the trendline to target a break below the 1820 support.

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 approaching the key support zone. This is generally a sign
of weakening momentum often followed by pullbacks or reversals. In this case,
the target should be the last swing high where the divergence started, which is
right around the 38.2% Fibonacci retracement level. If this setup fails, the
buyers will extend the rally towards the 1920 resistance, which will be the
last line of defence for the sellers.


Today we will have the latest US Jobless Claims
report where the market will want to see if the labour market is still holding
or starting to weaken. Strong data may cause some hawkish repricing in
expectations and it’s unclear if the market will take it as good news because
of the resilient labour market or bad news because the Fed will keep at it.
Weak data should be more straight forward as it’s likely to cause recessionary
fears given the yesterday’s PMIs and send the market lower. Tomorrow we will
hear from Fed Chair Powell who is set to speak at the Jackson Hole Symposium,
although the expectations are for him to just repeat their data dependency and
keep all the options on the table.

This article was written by FL Contributors at Source