Russell 2000: Downward Pressure Intensifies
By Ion Jauregui, ActivTrades Analyst
The Russell 2000 small cap index has experienced a marked deterioration in positioning, with a significant increase in short positions over the past week. Investor confidence in small caps has weakened markedly, in contrast to the S&P 500, whose positioning has returned to neutral after the sharp pullback from January's bullish highs. Recent flows have been dominated by new short positions in the Russell 2000, raising its bearish positioning considerably. This suggests that investors are taking a more defensive approach against the backdrop of economic uncertainty and tightening monetary policy in the US.
While the S&P 500 has experienced a rebalancing with mixed flows and an increase in short positions, the Nasdaq has shown a slower liquidation of long positions, maintaining some support in mega-cap growth stocks. In contrast, confidence in the Russell 2000 continues to deteriorate, which could indicate that investors are anticipating increased volatility in the small-cap segment.
Technical Analysis
Putting the chart in the spotlight we can observe two price constructions, the one initiated on December 13 until July 9, 2024 which was subsequently continued with another price construction that took the index price to highs, and this deconstruction initiated on February 19 until returning to the middle zone of that previous construction which was located between 1927 and 2117 points. Although currently the control point on the daily chart is well above the 2284 points, the reality check of the US market has led the Russell to correct to 2050. It would not be strange to see the index fluctuate in the range with the strong zone of 1924 points as the current floor zone, and supporting itself at the 1989 points of the current support. It is possible to see a bullish breakout towards 2114 points, as the RSI is currently very oversold at 33.29 after the strong correction of the last few days. Looking at the cross of averages we can see a bearish reinforcement in the session of March 13 indicating a bearish consolidation where the 200 average is above the 100 and 50. So this price contraction can and will test again in the coming weeks the area of the current momentum support and perhaps retest the area of the current floor.
The deterioration in the positioning of the Russell 2000 underscores concerns about the resilience of small caps in the face of macroeconomic conditions. With increased risk aversion and the possibility of further credit tightening, the index faces additional pressure. If the downtrend persists, we could see further weakness in the small-cap sector in the coming weeks.
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The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and such should be considered a marketing communication.
All information has been prepared by ActivTrades ("AT"). The information does not contain a record of AT's prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acing on the information provided does so at their own risk.
The Russell 2000 small cap index has experienced a marked deterioration in positioning, with a significant increase in short positions over the past week. Investor confidence in small caps has weakened markedly, in contrast to the S&P 500, whose positioning has returned to neutral after the sharp pullback from January's bullish highs. Recent flows have been dominated by new short positions in the Russell 2000, raising its bearish positioning considerably. This suggests that investors are taking a more defensive approach against the backdrop of economic uncertainty and tightening monetary policy in the US.
While the S&P 500 has experienced a rebalancing with mixed flows and an increase in short positions, the Nasdaq has shown a slower liquidation of long positions, maintaining some support in mega-cap growth stocks. In contrast, confidence in the Russell 2000 continues to deteriorate, which could indicate that investors are anticipating increased volatility in the small-cap segment.
Technical Analysis
Putting the chart in the spotlight we can observe two price constructions, the one initiated on December 13 until July 9, 2024 which was subsequently continued with another price construction that took the index price to highs, and this deconstruction initiated on February 19 until returning to the middle zone of that previous construction which was located between 1927 and 2117 points. Although currently the control point on the daily chart is well above the 2284 points, the reality check of the US market has led the Russell to correct to 2050. It would not be strange to see the index fluctuate in the range with the strong zone of 1924 points as the current floor zone, and supporting itself at the 1989 points of the current support. It is possible to see a bullish breakout towards 2114 points, as the RSI is currently very oversold at 33.29 after the strong correction of the last few days. Looking at the cross of averages we can see a bearish reinforcement in the session of March 13 indicating a bearish consolidation where the 200 average is above the 100 and 50. So this price contraction can and will test again in the coming weeks the area of the current momentum support and perhaps retest the area of the current floor.
The deterioration in the positioning of the Russell 2000 underscores concerns about the resilience of small caps in the face of macroeconomic conditions. With increased risk aversion and the possibility of further credit tightening, the index faces additional pressure. If the downtrend persists, we could see further weakness in the small-cap sector in the coming weeks.
*******************************************************************************************
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and such should be considered a marketing communication.
All information has been prepared by ActivTrades ("AT"). The information does not contain a record of AT's prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acing on the information provided does so at their own risk.
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.