Thursday's Market Minute: Russell 2000's Plunge Returns Bears To Old Hunting Grounds

The reversal of fortunes for the Russell 2000 has been swift and brutal, with the small-cap futures contract down almost 13% since its all-time highs less than a month ago on the heaviest volume since the March 2020 pandemic crash. The sting may feel especially sharp to longer-term traders, as the /RTY looked like it was finally breaking out of nearly a year of range-bound trading before the recent nosedive brought price back to the low end of the old range on strongly bearish price action. The question now is whether this giant whipsaw move will make yet another breakout, but this time continue to the downside.

Checking technical indicators, the RSI crossed below the oversold area as of yesterday’s close, typically viewed as a sign of weakness. Meanwhile, the /RTY’s plunge brought it crashing through the commonly-followed moving averages, most notably the 200-day Simple Moving Average and, as of yesterday’s close, the 252-day Exponential Moving Average. Price crossing and closing below these indicators typically is viewed as bearish, especially for longer-term moving averages as they encompass more price data. Additionally, the slope of the moving averages themselves are trending downward, or at least flattening, suggesting a potential shift in the broader trend.

The /RTY is now approaching what has been a support zone during most of the previous year, with price typically spending little time between 2080 and 2125 before bouncing. Another thing to note is the -2 Standard Deviation Channel is near 2112 while the Linear Regression -100% Channel is near 2078, both of which traders could be using to try to gauge a possible bottom. Price currently is also on the verge of dropping below the yearly Volume Profile’s Value Area (the area in which 70% of trades have taken place during the time frame) into an area of relatively light trading. The next significant volume node isn’t until near 1950, so traders should be wary of fast price action.

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