Russell 2000 Forecast as the Fear and Greed Index Falls to 49

Summary:
• Russell 2000 index downward spiral continued after the strong US consumer confidence data. What next as the fear and greed index retreats?

The Russell 2000 index downward spiral continued this week after the strong American consumer confidence data. The small and mid-cap index dropped to a low of $1,855, which was the lowest level since July 29. It has fallen by almost 9% from the highest point in August as the fear and greed index moved to the neutral point. 

US stocks retreat

The Russell 2000 index is a major financial asset that tracks some of the biggest small and medium-cap stocks in the US. The index is often seen as a better barometer for the American economy because most constituents don’t have vast international exposure. 

The Russell index retreated recently after Jerome Powell, the Fed Reserve chair, extremely hawkish statement. In his speech on Friday, he warned that the bank will continue hiking interest rates in the coming months. Other officials like Charles Evans and Mary Daly have also insisted that the bank will need to keep hiking.

The view was supported by the recent economic data from the US. On Tuesday, data by Conference Board showed that the country’s consumer confidence rose sharply in August as inflation eased. At the same time, the JOLTs job openings number showed that the country’s labor market is substantially strong. Therefore, analysts expect that the Fed will hike interest rates by either 0.50% or 0.75% in September.

The fear and greed index stands at the neutral level of 49, lower than last week’s high of 57. Market momentum and junk bond demand have moved to extreme greed while stock price strength and breadth have moved to the extreme greed level.

Russell 2000 forecast

The daily chart shows that the Russell 200 index has pulled back sharply in the past few days. As it dropped, the index managed to move below the support at $1,918, which was the highest point on June 7. It also moved below the 25-day and 50-day moving averages while the MACD and the Relative Strength Index (RSI) has continued dropping. 

Still, the index is forming an inverted head and shoulders pattern, signaling that it will soon resume the bullish trend. If this happens, the next key level to watch will be at $2,033. A drop below the support at $1,800 will invalidate the bullish view.