E-mini Russell 2000 Futures: Back to Bargain-Buying
Our View
Markets have rallied to record highs thanks to growing optimism that the US will be able to tame inflation without triggering a recession; and that the Fed will cut interest rates in 1H 2024. In a soft landing, we expect investors to start looking for bargain-buying opportunities in overlooked corners of the market including small caps.
From a valuation perspective, valuations in the small cap corner of the market are more attractive. The S&P 500 is trading at a Last 12 Mths P/E ratio of 22.7x; compared to a P/E ratio of just 18.8x for the S&P 500 Equal Weighted Index, which gives greater weight to companies with smaller market cap.
Since the end of October, the small cap focused Russell 2000 has outperformed the broader S&P 500 and the Magnificent 7, rallying by +19.42% as of 15 December. This is well above the S&P 500's 12.53% and the Magnificent 7's 14.35%.
Expressing Our View
We favour the hypothetical trade setup below in order to express our view.
Long E-Mini Russell 2000 Futures:
With a Fibonacci Retracement drawn from the November 2021 high, we favour taking a long position with entry around the present level of 2010, target level of 2280 around the 0.786 retracement level, and stop loss below the 0.382 retracement level around 1935, This setup delivers a reward: risk ratio of 3.66x.
At the same time, the 50EMA seems to be heading towards a bullish crossover with the 200EMA- a "Golden Cross" that typically signals strong bullish momentum.
• Entry Level: Present level of 2010
• Target Level: 2280
• Stop Loss Level: 1935
• Profit at Target: 2710 ticks x $5
• Loss at Stop: 740 ticks x $5
• Reward: Risk Ratio: 3.66x
Markets have rallied to record highs thanks to growing optimism that the US will be able to tame inflation without triggering a recession; and that the Fed will cut interest rates in 1H 2024. In a soft landing, we expect investors to start looking for bargain-buying opportunities in overlooked corners of the market including small caps.
From a valuation perspective, valuations in the small cap corner of the market are more attractive. The S&P 500 is trading at a Last 12 Mths P/E ratio of 22.7x; compared to a P/E ratio of just 18.8x for the S&P 500 Equal Weighted Index, which gives greater weight to companies with smaller market cap.
Since the end of October, the small cap focused Russell 2000 has outperformed the broader S&P 500 and the Magnificent 7, rallying by +19.42% as of 15 December. This is well above the S&P 500's 12.53% and the Magnificent 7's 14.35%.
Expressing Our View
We favour the hypothetical trade setup below in order to express our view.
Long E-Mini Russell 2000 Futures:
With a Fibonacci Retracement drawn from the November 2021 high, we favour taking a long position with entry around the present level of 2010, target level of 2280 around the 0.786 retracement level, and stop loss below the 0.382 retracement level around 1935, This setup delivers a reward: risk ratio of 3.66x.
At the same time, the 50EMA seems to be heading towards a bullish crossover with the 200EMA- a "Golden Cross" that typically signals strong bullish momentum.
• Entry Level: Present level of 2010
• Target Level: 2280
• Stop Loss Level: 1935
• Profit at Target: 2710 ticks x $5
• Loss at Stop: 740 ticks x $5
• Reward: Risk Ratio: 3.66x
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