A long-overdue small-cap rebound

The small-cap Russell 2000 Index has been the underdog among the four major US indices since last year. Its post-pandemic rally halted in early 2021, and subsequently, it went sideways for more than a year without making new highs. Meanwhile, the tech darlings continued to go north all the way until the beginning of this year.


The first half of 2022 has been marked by widespread risk-off sentiment and a precipitous drop in the US equity market. After being down almost 30% from the high, we now find the Russell 2000 Index at significant technical support levels that we believe a meaningful rebound will likely ensue.

The Index has bounced right at the 50% Fibonacci retracement level near 1700. We also observed bullish RSI Divergence where price made lower lows, but RSI showed higher lows, suggesting the bearish momentum is waning and at the cusp of a reversal.


Entry at 1806, stop above 1680. Targets are 1880 and 2100.

Disclaimer:
The contents in this idea are intended for information purposes only and do not constitute investment recommendations or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios.