The Russell 2000 index has erased some of the gains made last week as investors focused on the strong inflation data from the United States. It dropped to a low of $1,838, which was lower than last week’s high of $1,917. The VIX index, on the other hand, has rallied from last week’s low of $83.32 to a high of $93.58. In the same period, the DXY index has jumped from last week’s low of $107.71 to a high of $110.
Small-cap stocks retreat
The Russell 2000 index is a leading financial instrument that tracks the biggest small and mid-cap stocks in the United States. Some of the most notable Russell constituents are companies like Biohaven Pharmaceuticals, Shockwave Medical, Celsius Holding, Houlihan Lokey, and Dillard’s among others. The index has collapsed by more than 16% this year.
Russell 2000 has been under intense pressure as investors worry about the soaring inflation and the rising interest rates. The Fed has maintained an extremely hawkish tone in the past few months. It has hiked rates by 225 basis points and hinted that it will continue hiking interest rates in the coming months.
Historically, the index tends to underferform during a period of high interest rates. The same is true with other indices like the Dow Jones and Nasdaq 100. Also, these indices have an inverse relationship with the US dollar index and the VIX index.
A stronger US dollar index has an impact on American indices. For one, a strong dollar usually impacts companies that export since it makes their products more expensive. However, since most Russell companies are domestic, a strong US dollar has made their imports of raw materials much cheaper.
Russell 2000 forecast
The daily chart shows that the Russell 2000 index has been in a downward trend in the past few days. It has moved below the important support level at $1,918, which was the highest point in June. The index has moved slightly below the 25-day and 50-day moving averages while the Awesome Oscillator has moved below the neutral point.
Therefore, the index will likely continue falling as sellers target the next key support level at $1,700. A move above the resistance level at $1,900 will invalidate the bearish view.
