RUSSELL 2000 Technical Analysis | Forexlive
As the Fed delivered a more
hawkish than expected stance, the market sold off for some
days as the risk of an overtightening coupled with a deep recession caused risk
aversion across the board, affecting the Russell 2000. The Fed is resolute on bringing the inflation
rate back to their 2% target and they are willing to go for a “hard
landing” scenario to achieve that.
This can be seen by the subtle
hawkish messages like them not revising the terminal rate in the Dot
Plot after the miss
in the CPI report even if they could do so until the evening or them
complaining about the tight labour market hinting that they want to see the unemployment
rate picking up.
All of these things point to the
two of the worst things for the stock market: overtightening and serious
recession.
In the
chart above we can see how the market initially spiked up as the CPI
report missed again expectations but soon after got faded as
the market went defensive into the FOMC meeting. Sure enough, the Fed came
out as more hawkish than expected causing a risk-off sentiment in the following days. The
price broke down through a swing low support and kept on falling until the
selling momentum waned.
In the 1-hour chart above we can
see how the price divergence with the RSI was hinting to a loss of
selling pressure. In such instances generally the price pullbacks to a
previous swing level or the top/bottom of the swing where the divergence
started. In the chart above the price retraced back to the top (orange line) of
the whole divergent move.
This is also a previous broken
swing low support area (blue) that now may turn
into a resistance. The price now is struggling
right at the resistance as we can tell by the multiple rejections and
candlesticks wicks. If the price breaks down through the blue trendline the sellers
would be again in control.
On the daily chart above we can
see how the CPI spike couldn’t break the resistance area at 1910-1920.
After the FOMC the price broke down through the minor blue support zone. As the
selling pressure waned, the price pull backed and it’s currently retesting the
previous broken support that now may turn into resistance.
On a downward continuation the clear
target is the double bottom level at 1642. If we get another “Santa Claus
Rally” the price should break up the blue resistance area and reach again the
1900 price zone.