Thursday's Market Minute: Equities Falter As Russell 2000's Rebalancing Looms

Russell 2000 futures made new yearly lows along with the other major equity indices last week, with the /RTY slipping as much as about 3.2% since the May 12 lows and now struggling to retake the 1700 level. The direction in which the Russell breaks from here is important to note, as the /RTY is typically regarded as a better reflection of whether markets are in risk-on or risk-off mode than the other indices due to the riskier nature of small-cap companies.

Consider as well that the annual rebalancing of the underlying Russell 2000 will take place before the market opens this Monday, June 27, which is historically one of the highest volume trading days of the year. Be prepared for the possibility of greater volatility as institutional traders adjust their positions not only in the index itself, but also in the stocks affected by the refresh.

As for the /RTY chart, price is forming a falling wedge-type pattern beginning with the highs in mid-March. This is typically regarded as being more of a bullish pattern, but the breakout in either direction is the important thing to watch for. Momentum indicators currently favor the bears, with the Moving Average Convergence-Divergence (MACD) showing a recent bearish crossover. The recent lows near 1640 are one key point to watch to the downside, but the yearly -1 Standard Deviation Channel near 1688 is the nearest support point on the docket. As for resistance, look to the 21-day Exponential Moving Average near 1766 for a potential ceiling.

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