Index in Focus: Russell 2000

If price breaks below the flag formation, it could be on its way to the target near 1900

Downtrend 6

According to FTSE Russell, “the Russell 2000 Index is constructed to provide a comprehensive, unbiased barometer of the small cap segment of the US equity markets.  It is a subset of the Russell 3000, that includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.”  Small capitalized stocks tend to have higher beta, which measures a stock’s volatility. Therefore, it is best to actively manage these stocks.  However, when in an index of 2000 stocks, the volatility tends to be consistent with that of overall markets.

 

Trade The Russell 2000: Login or Open a new account!

• 
Open an account in the UK
• 
Open an account in Australia
• 
Open an account in Singapore

 

The US Small Cap 2000, or the Russell 2000, has had a tough time trending higher this year!  As the larger cap S&P 500 and NASDAQ 100 were grinding higher, the smaller cap stock index was trading sideways. On January 7th the low was 2059.33.  The index traded in a range between there and 2360.16 for nearly the next 10 months before breaking above the channel on November 3rd.  The index made an all-time high on November 8th at 2458.85, however failed to continue higher and has since pulled back into the channel.  The candlestick at those high on the daily timeframe was a shooting star, an indication of a possible reversal.

20211206 russell2000 daily ci

Source: Tradingview, Stone X

On a 240-minute chart, the Russell 2000 has paused between roughly 2140 and 2217, as the RSI moves from oversold territory back to neutral.  In doing so, price has formed a potential flag pattern.  The target for a flag pattern is the distance of the length of the pole added to the breakdown point of the flag.  In this case the target would be near 1900, which is near its 1-year lows!  However, the small cap index must first break through the bottom trendline of the flag near 2160.  Horizontal support below there is near 2120 and then the bottom of the channel near 2066.58.   Resistance above is at the upper trendline of the flag near 2225 and then the 200- and 50- Day Moving Averages (on the daily timeframe) at 2258.74 and 2295.38, respectively.

20211206 russell2000 240 ci

Source: Tradingview, Stone X

Price in the Russell 2000 failed to maintain its momentum above the top trendline of the sideways channel and pulled back in dramatic fashion.  If price breaks below the flag formation, it could be on its way to the target near 1900, perhaps even by the end of the year!

Learn more about equity trading opportunities.


Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.