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Inside Markets — Russell 2000

Russell 2000

July 25, 2024

The Russell 2000 (RTY) continues to be the strongest major US index as rising expectations for Fed rate cuts drives rotation into cyclically sensitive/small cap companies that tend to use more floating rate debt. The RTY broke above multi-year range resistance at ~2140 after a cooler June CPI print caused a 4-day short-covering rally. All rotations, whether they’re lasting or temporary start this way followed by a brief period of consolidation. From a technical perspective, the RTY needs to maintain levels above ~2140 range resistance and extend above Tuesday’s cycle high of 2264 to partially validate the rotation. I say ‘partially’ because durable cyclical rallies are usually preceded by strength in cyclical cross markets like copper or the EuroStoxx 50 (SX5E). But the RTY has underperformed the SPX by ~30 percentage points over the last 2 years, which gives the early catch up trade a more compelling risk/reward profile.

The NDX and Philadelphia Semiconductor Index (SOX) are no longer in bullish technical trends after breaking near-term support levels yesterday. The good news may be that next level technical support is fairly close by (NDX ~3% lower/SOX is ~1.5% lower) and both indices have reached short-term oversold levels.

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