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Russell 2000 statistical and technical analysis

Small companies in relation to their capitalization may indicate the viability of the overall stock market. What do small caps in the US say?

If we look at the development of stock market in the US in recent months, the returns in the Russell 2000 index were lower compared to the medium and large capitalization stock indices. We can take small caps as the leading indicator of economic growth in a particular country or overall economy. The current price of Russell 2000 is 2 086 (March 18, 2021). Let’s now look at statistical and technical analyzes.

STATISTICAL ANALYSIS

Based on a long-term analysis of historical data, the average positive and negative daily returns are approximately 0.86% and -0.96%, respectively. The estimated daily return in both directions based on their probability of occurrence is 0.47% and -0.43%. FridayΒ΄s return was 1.02%, which is below the first standard deviation. Our scoring is currently slightly positive (1) for the month-on-month change and 0 for price indexation. Both scorings range from -3 up to 3, which means we are currently in the middle phase of the cycle. The development of the estimated cycles based on our analytical system is shown in the following chart.

Russell 2000 daily price indexation

Source: WALFIR

Different moving averages (MAs) help us better identify trends across multiple time frames. We use 3 basic MAs to find out which sentiment dominates each horizon. The purple line represents the monthly , the green line the 6 months and the yellow line the annual moving average. According to medium- and long-term MAs, Russell 2000 still has bearish sentiment because it is below them. However, the monthly moving average currently supports bullish moods.

Russell 2000 daily price development

Source: WALFIR

Since the beginning of this year, we have witnessed more downward trends, with the maximum level reaching 3 consecutive days. The maximum decrease is 7 days in the measured period. The upward trend in recent weeks have not exceeded more than 3 days. However, the maximum for the last 3 years is 7 days. We could use the average long-term ATR (Average True Range) obtained from daily data (1.85%) to estimate Stop Loss orders for our positions. The current value is 1.81%, which is almost average. Approximately 90% confidence interval (return between –2.00% and 2.00%) is shown in the histogram below by a red rectangle.

Russell 2000 daily return distribution

Source: WALFIR

We could use the last decile of low to high returns (2.70% ) to estimate Profit Targets, as shown in the chart below.

Russell 2000 daily low to high distribution

Source: WALFIR

TECHNICAL ANALYSIS

The basic technical analysis again points to sideways trading. For almost the whole of 2021, we saw the same pattern, when the bottom of the channel was a psychological level of 2150. At the moment, however, it may act as resistance to the market price. Russell 2000 is currently again above the short-term moving average and very close to 23.60% Fibonacci retracement level. The demand zone (green rectangle) looks stable so far.

Russell 2000 basic tech analysis

Source: TradingView

WALFIR Technologies is one of the three divisions of WALFIR s.r.o., which is based in Slovakia. The primary interests of this division are analytical, quantitative, and algorithmic...

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