Russell 2000 may continue to underperform

Out of the 4 major US Indices (SPX 500, Nasdaq 100, DJIA, Russell 2000), the Russell 2000 performed the worst on the since falling from all-time highs in November 2021.  The small cap stock index fell into bear market territory , down over 22.5% from its all-time highs.  Thus far, the Russell 2000 has regained 9.5%.  See the chart below for comparison:

Source: Stone X

The Russell 2000 had been trading in a range between 2100 and 2360 for nearly all of 2021.  In early November 2021, the small cap index broke above the channel and reached an all-time high of 2458.85 before reversing and moving back into the range.  The Russell 2000 traded down to 2144.32 and bounced.  This set up an AB=CD pattern (which was complete on January 27^th).  As is often the case, what happens on a false breakout on one side of a channel happens on the other side of the channel.  Price eventually broke lower below the bottom channel line on January 19^th and traded down to 1901.36, before bouncing.  However, whereas the other indices have retraced AT LEAST to the 38.2% Fibonacci retracement from their all-time highs (the S&P 500 and DJIA are at their 61.8% Fibonacci retracement), the Russell 2000 has yet to come close to it yet.

Source: Tradingview, Stone X

On a 240-minute timeframe, the AB=CD pattern is much clearer.  Currently, the Russell 2000 is about to be tested as it closes in on a confluence of resistance at the bottom trendline of the long-term, horizontal channel and the 38.2% Fibonacci retracement level from the highs of November 2021 to the recent lows of January 28^th at 2099.25 and 2114.32, respectively. Above there, resistance is at the 50% retracement level from the same timeframe at 2180.11, and then another confluence of horizontal resistance and the 61.8% Fibonacci retracement level near 2237/2246.  Horizontal support is at 2054.72.  Below there, price can fall to the February 4^th lows at 1968.60 and then the January 28^th lows at 1901.36.

Source: Tradingview, Stone X

If the Russell 2000 wants to play catch up to its peers in terms of market recovery, it will need to at least retake the 50% retracement from its all-time highs to recent lows.  Thus far, it hasn’t come close.  Therefore, if markets resume the recent trend lower, the Russell 2000 is likely to lead the way!