Market Analysis

Russell 2000: Rises near a demand level on an improved trade outlook

The index managed to bounce back after the last couple of down days, largely on an improved trade outlook. Indeed, a report stated that the US and China are working harder to come to a truce at the G20 meeting at the end of November. In addition, a report detailed that US trade representative Robert Lighthizer told executives that further tariffs on Chinese goods might be on hold.

The Federal Reserve (Fed) is widely expected by market analyst to deliver its fourth rate hike of 2018 in December, increasing the interest rate from 2.25% to 2.5%, and to continue raising rates in 2019. However, US President Donald Trump has constantly censured the Fed, blaming that it has been excessively aggressive in raising rates. Some economists and market analysts have disputed that fears the Fed will overact on the interest rate tightening have contributed to this October market weakness and raises the risk of triggering an economic slowdown as early as next year.

Retail sales in the US rose to 0.8% month-over-month in October, compared the downwardly revised -0.1% registered in September and stronger than analyst forecast of a 0.5% growth. This was the largest increase in retail trade since May. Changes in Retail Sales are widely followed as an indicator of consumer spending. Generally, a high reading is seen as positive for the US economy, while a low reading is seen as negative.

The initial jobless claims in the US rose by 2K to 216K in the week ending November 10 from the previous week’s unrevised level of 214K and failed analysts’ estimates of a 212K drop. However, the Veterans Day holiday was observed on Monday, which could have influenced the data. Claims for North Carolina continued to be affected by Hurricane Florence while in Florida and Georgia they were impacted by Hurricane Michael. This indicator provides a measure of strength in the labour market. A larger than expected number indicates weakness in this market which influences the strength and direction of the US economy.

Since the beginning of 2018 until last Thursday close, the US index is underwater with a 1.0% loss and since the start of November, is still managing to stay afloat with almost 1.0% rise. Nonetheless, the week is approaching the end with Russell 2000 registering a loss of 1.5% and on a daily basis closed green with almost 1.8% gain. Furthermore, the index made a phase change, shifting from a distribution to a bearish phase.

On yesterday session, the Russell 2000 initially fell but found enough buying pressure near the demand level at 1,487.4 to reverse and managed to close near the high of the day, however, closed within Wednesday range, which suggests being slightly on the bullish side of neutral.

The daily stochastic is showing a shy bullish momentum although is still below the 50 midline.

In October, the Russell 2000 showed extreme weakness displayed by a drop of -11.22% and erasing all 2018 gains. This drop was so strong that lead to a death cross, created when the short-term moving average (50 day) descends below the long-term moving average (200 day). The death cross is a signal that short-term momentum in the index is slowing and that a bull market is about to end. In early November, the Russell 2000 managed to make an upward correction but stalled and failed to carry on near the 50 Fibonacci retracement at 1,584.5 so if bulls manage to push the price back up expect this Fibonacci retracement level to act as a resistance.

UsaRus is a CFD written over Russell 2000 futures.


Russel 2000: Rises near a demand level on an improved trade outlook

UsaRus Dec ’18 Daily Candlestick Chart


Watch out next Week: 

On Wednesday, November 21 at 13:30 GMT (08:30 PM ET) the US Census Bureau is scheduled to release the durable goods orders in October, which is expected by market analysts a drop to -1.8% compared to the previous 0.8% registered in September.

On Thursday, November 22 Thanksgiving Day, is a harvest festival. Traditionally, it is a time to give thanks for the harvest and express gratitude in general. It is primarily a North American holiday, which has generally become a national secular holiday with religious origins. So expect light trading volume on this day.

On Friday, November 23 at 14:45 GMT (09:45 PM ET) the Markit Economics is scheduled to release the preliminary Manufacturing PMI for November, which is expected to expand to 56.0 comparing to the previous 55.7 registered in October. At the same time, the Markit Economics will release the preliminary Services PMI in November, which is expected to come in unchanged at 54.8.


Written by Hugo O’Neill, External Analyst


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