U.S. Small Caps Eye Breakout as Fed Rate Cut Bets Build

Unless it’s accompanied by a recession, there are few things U.S. small cap stocks enjoy more than rate cuts—especially given how many rely on the kindness of others to fund their growth ambitions. With another soft core PCE report expected at the end of the week, and with some Fed officials signalling a preparedness to cut rates again as soon as July, the ducks look to be lining up for a potential bullish break in the U.S. Small Cap 2000.

Recent price action backs this up, coiling within an ascending triangle on the daily chart just beneath horizontal resistance at 2170 and the key 200-day moving average just above. Price momentum is also on board, with RSI (14) breaking its downtrend and moving further above 50. MACD has crossed the signal line above zero, reinforcing the bullish message.

One look at how price has interacted with the 200-day moving average in the past suggests the higher probability play would be to wait for a break and close above the level before establishing longs, allowing a stop to be placed beneath it or 2170 for protection against reversal.

2320 looms as an obvious target, coinciding with a known resistance level. If hit, traders can assess whether to cut, hold or reverse the trade depending on how price reacts at that level.

Good luck!
DS