Russell 2000: How deep can the Bear Market go?As the markets navigate uncertainty, the Russell 2000 appears to have entered a #bearmarket, contrasting with other indices that are still correcting. A pressing question looms: Has the market correction concluded, or are we on the brink of a broader bear market?
Last Friday's market turmoil saw panic-like sell-offs, deeply affecting major U.S. and European #stocks with losses ranging from 6% to over 10%. Such widespread sell-offs suggest a panic reaction, possibly indicating a market bottom. However, panic alone cannot confirm this hypothesis.
To evaluate the likelihood of a deeper bear market and potential buying opportunities, several factors need consideration.
Currently, the Russell 2000 is approximately 30% down from its previous all-time high. Technically, it rests in a horizontal support zone. However, the strength of this zone is debatable. Let’s explore why.
The initial moves by President Trump to impose reciprocal tariffs have already been felt, but the reactions of other nations remain unpredictable. Should other countries react strongly or if further tariffs and legal changes are introduced by President Trump, we could be heading toward a global trade war. Such a development could compromise the support zone, potentially driving the Russell 2000 down by 50%, reminiscent of the COVID-19 pandemic drop in 2020. A target range of 1250–1200 points could thus be realistic.
If the situation deteriorates further and we revisit pandemic lows, the Russell 2000 could plummet by nearly 60%, reaching as low as 950 points, mirroring the 2020 scenario.
I've recently suggested that this scenario may be the right time to cautiously start building small positions, considering additional declines could occur. A cautious and incremental market entry is a wise strategy during such uncertain periods.
We hope this focused analysis on the #Russell2000 provides valuable insights as you navigate these turbulent times.
