US small cap breakout sets scene for run to record highs

Russell 2000 futures closed at cycle highs on Wednesday, benefitting apparently from optimism Donald Trump will win the Presidential election. That may be so, but for the US small cap space, technical signals often come across as far more important when it comes to directional risks than any fundamental factor.

The latest rally was sparked by a break of downtrend resistance, sending futures surging through the downtrend running from the 2024 highs set in late July. While some may not put much weight on it as it was only established last month, running from two cyclical peaks, the downtrend comes across as decent level to build a long setup around.

Traders could buy above the downtrend with a tight strop below, initially targeting 2320.6. For the trade to stack up from a risk-reward perspective, we’d need to see a push towards 2378.3 or 2460.8, the latter coinciding with the record highs set in the early stages of the pandemic.

Momentum indicators continue to generate bullish signals, adding to the base to buy dips or breakouts.

Good luck!
DS