Russell 2000 Technical Analysis – Eyes on the US CPI report

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 21^st 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

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

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

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.