Sage Investment Club

The recent rally in the Russell
2000 that was based on “soft landing” hopes as the labour
market data continues to show strength
and the inflation
data moderates
, got sort of a wake up call with the latest retail
sales report
which showed a big miss to the expectations and
the previous numbers were revised lower.

Even in light of the weakness in
the economic data, the Fed members repeated that they will still tighten to
their projected terminal rate and stay there for quite some time
. This makes the things harder
for the market as the Fed doesn’t want to ease too early and risk another wave
of strong inflation considering also that China has reopened its economy and
commodity prices may surge again.

In the
daily chart above, we can see how the price after breaking out of the Christmas
range rallied to the resistance zone at the 1920 level. That
resistance has been holding since September 2022 and the bulls seem to lack
conviction in breaching that area

The price
may now fall back to the resistance now turned support at the 1800 price zone. If the
price falls further below that level, the bears will start to target once again
the low at the 1640 price area.

In the 1-hour chart above, we can
see all the recent set of catalysts that pushed the price out of the Christmas
range and gave the bulls control until the resistance at the 1920 level.

Retail Sales Miss a Big Question Mark for Russell 2000

The price got rejected as the
Retail Sales report showed a big miss to expectations and awakened the recession
fears that the market ignored until then.

Zooming in to the 15 minutes
chart, we can see the loss of momentum to the downside depicted by the price
divergence with the MACD indicator below. If the price breaks below the
red line, the bears will still have enough control to target the support at
1800 level.

Given the divergence though, it’s
possible that we first see a pullback to the 1882 level before the bears try
another run to the downside. If the price breaks 1882 to the upside though,
it’s possible that the bulls will regain control and target again a breakout of
the 1920 resistance.

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