Basic overview
The US CPI Wednesday's report met expectations and sealed the 25 bps cut next week. That helped the Russell 2000 as the hedges entered a potentially hot CPI. Although the benefits were short-lived. The US PPI yesterday it surprised the upside and the sentiment was weighed down as inflation fears keep the bullish trend away.
Overall, the market remains largely unchanged around three rate cuts by the end of 2025 and we will likely need stronger evidence of accelerating inflation to price in the remaining rate cuts.
Next Wednesday, we have the FOMC decision, and while the central bank is likely to be in line with market pricing, we could have an overall hawkish event. Market participants might want to err on the defensive side which could prevent market upside.
In the bigger picture, Trump's policies should be a positive driver for growth in 2025 and with the Fed still in an easing cycle, growth should remain positive and may even accelerate as already seen by Atlanta Fed GDPNow indicator.
The risk in 2025 will be inflation and the Fed's response function. Currently, the Fed's response is that a strong economy would warrant a slower pace in the easing cycle, not tightening. That should still be supportive for the stock market.
If the Fed's response action were to change to a possible tightening, that would likely trigger a sharp correction in the stock market on an expected economic slowdown. For now, we are still in a “buy the dip” environment.
Russell 2000 Technical Analysis – Daily Time Chart
Russell 2000 per day
On the daily chart, we see that the Russell 2000 continues to pull back as we go to the FOMC decision next Wednesday. From a risk management perspective, buyers will have a better risk to reward position around the 2290 support. On the other hand, the sellers will want to see the price break below the support to extend the correction into the main trend around the 2200 level.
Russell 2000 Technical Analysis – 4 Hour Schedule
Russell 2000 4 hours
On the 4 hour chart, we can see that the recent price action created what could be a bull flag. The buyers want to see the price break above the ceiling line of motion
to rally in for a rally into new all-time highs. On the other hand, the sellers are likely to continue the main trend to position for a drop into the 2290 support.
Russell 2000 Technical Analysis – 1 Hour Time Table
Russell 2000 1 hour download
On the 1 hour chart, we can see that we have a small downtrend defining the current bearish trend on this time frame. The buyers will want to see the price break higher to target the main trend line of the bull flag.
On the other hand, the sellers are likely to continue the trend to target a break below the bottom trend line of the bull flag and increase the bearish trend into the 2290 support. The red lines are explaining the average daily range for today.
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