News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
Wall Street
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • I guess a $50 billion buyback plan doesn't solve everything... $FB
  • 🇺🇸 New Home Sales MoM (SEP) Actual: 14% Previous: -1.4% https://www.dailyfx.com/economic-calendar#2021-10-26
  • 🇺🇸 CB Consumer Confidence (OCT) Actual: 113.8 Expected: 108.3 Previous: 109.8 https://www.dailyfx.com/economic-calendar#2021-10-26
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Silver are long at 89.45%, while traders in Wall Street are at opposite extremes with 74.42%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/ML0zQXJL0X
  • Commodities Update: As of 13:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: 0.18% Gold: -0.85% Silver: -1.79% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/DM4AY5BTj6
  • Heads Up:🇺🇸 New Home Sales MoM (SEP) due at 14:00 GMT (15min) Previous: 1.5% https://www.dailyfx.com/economic-calendar#2021-10-26
  • Heads Up:🇺🇸 CB Consumer Confidence (OCT) due at 14:00 GMT (15min) Expected: 108.3 Previous: 109.3 https://www.dailyfx.com/economic-calendar#2021-10-26
  • DXY continues to test the trend and support, Get your market update from @PaulRobinsonFX here:https://t.co/MRSNMjbapB https://t.co/eUosICS0eP
  • Indices Update: As of 13:00, these are your best and worst performers based on the London trading schedule: Germany 30: 0.97% FTSE 100: 0.63% France 40: 0.62% US 500: 0.36% Wall Street: 0.28% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/DWeASLohgZ
  • $UPS, the American shipping and 'supply chain management' company reported better revenues $23.18bln vs $22.56 expectations and EPS of $2.71 vs $2.52 expectations. Shares were up +4.5% pre-open. A macro-insight dig as well https://t.co/DWKZxwxCPT
Is Russell 2000 About to Stage a Comeback? Will a Cyclical Relief Help IWM?

Is Russell 2000 About to Stage a Comeback? Will a Cyclical Relief Help IWM?

Diego Colman, Market Analyst

RUSSELL 2000 OUTLOOK:

  • A cyclical small-cap relief could materialize once the economic recovery stabilizes
  • A rotation into small-cap could lift the Russell 2000 higher over the medium term
  • The bullish Russell 2000 thesis could be played via the IWM ETF

Most read: Financials and Energy Stocks May Have Upside Potential, XLF and XLE Look Attractive

Inflation can be positive for small-cap and cyclical companies when it is accompanied with strong economic growth. On the flip side, when inflation runs hot, it is supply driven and economic activity starts to disappoint, small-caps don’t tend to perform well as mounting price pressures eat into profit margins rapidly.

In early summer, as U.S. CPI touched its highest levels in a generation and delta-variant fears caused output to start downshifting, the specter of “stagflation” spooked investors, prompting traders to cut exposure to cyclical stocks. This fear, whether justified or not, was probably responsible for the Russell 2000's poor performance over the past few months (the Russell 2000 is a cyclically oriented small-cap index).

The good news now is that inflation appears to be easing after supercharged readings earlier in the year. This dynamic may alleviate pressure on margins and create a friendlier setting for small caps with little pricing-power.

Related: S&P 500, Dow Jones, DAX 30 Look Increasingly Vulnerable as Long Bets Accumulate

With inflationary pressures losing some impetus, there could soon be a rotation into cyclicals and small-caps again, a scenario that stands to benefit the Russell 2000. The bullish thesis, however, is based on the conjecture that the recovery will stabilize and the labor market will improve in the coming months.

Investors and consumers have become overly gloomy about the economy on account of the latest COVID-19 wave driven by the delta-variant, but the pessimism is misguided as the health crisis will not get out of hand with effective vaccines and broadening inoculations. On this point, it is important to note that vaccines for small children are slated for approval in late October. This should further improve the situation.

Looking ahead to the fourth quarter, encouraging stories about falling coronavirus cases should dominate the news cycle, boosting consumer confidence and household spending. This, in turn, should be good news for the labor market and GDP (as a side note, consumers maintain a healthy balance sheet with ~$2.4T excess savings according to JP Morgan).

While we will not match the outstanding performance achieved during the first and second quarter, when fiscal stimulus was in full swing, the economy should still expand at a healthy pace going forward. Granted, slower growth may translate into lower equity returns, but the macroeconomic environment, Fed flexibility and above-trend expansion forecast through 2022 are still consistent with positive equity returns and cyclical relief. This may leave the Russell 2000 in a good position to cruise higher over the medium term, but any upside move will not likely have the explosive momentum seen during the peak of cyclical optimism earlier this year.

IWM - A PROXY FOR THE RUSSELL 2000

One way to trade equity indexes is via ETFs. When looking at the Russell 2000, the IWM ETF tracks its performance and its generally used as the small-cap index’s proxy.

Focusing on IWM recent price action, we can see that the EFT is approaching its 200-day moving average and Fibonacci support near 218 (38.2% Fib retracement of the 2021 ascent). In this area, buyers could regain control of the market and trigger a move towards the September high at 230. Should this technical barrier be taken out, the IWM could be on its way to recover its record high near 235.

On the flip side, if IWM continues the recent pullback and drops below 218, the bullish thesis could unravel temporarily, at least from a technical point of view. Under this scenario, the EFT could head towards the next support at 210 in the near-term (August low).

IWM TECHNICAL CHART

Russell 2000

EDUCATION TOOLS FOR TRADERS

---Written by Diego Colman, DailyFX Market Strategist

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES