Mapping the Market: US small cap stocks ripe for a rebound

The S&P 500 and Nasdaq Composite hit fresh record highs last week, but the Russell 2000 index of smaller ​US companies has been heading the other way. However, this widely followed small-cap index reached ​a significant zone of support, and bounced, signaling it may now ‌have ​room for a greater rebound, technical analysis suggests.

Click here for a detailed technical analysis chart. Technical analysis uses past price moves on charts to help understand where a market might go next.

At one point last Thursday, the Russell 2000 index (RUT) fell to 2,762.58, putting it down as much as 9.97% from ‌its August 14 record close, according to LSEG data. With this, it came within a hair of correction territory. A correction is defined as a 10% drop from a record peak. Friday, it ended at about 2,807, down 8.5% from its record close.

When a market is falling, chart watchers look for support. These are price levels where buyers may step in, a bit like a floor, and the Russell tested an area packed ‌with them late last week. The first is the 200-day moving average near 2,789. A moving average smooths out daily ups and downs by averaging prices over a set period. The 200-day version is ‌widely used to judge the long-term trend, and it is still rising. Just below that is a trendline near 2,782, which is a straight line connecting the rising lows since April 2025.

Traders use Fibonacci retracements, which are percentages taken from a mathematical sequence, to estimate how much of a past rally a market might give back. A 23.6% retracement of the climb from April 2025 to August 2026 sits at 2,754. Below that are the 233-day moving average near 2,743 (233 is a Fibonacci number), the January ⁠high of ​2,735 and the May low of 2,722. Another tool ⁠traders turn to when assessing a market is the 9-day Relative Strength Index, or RSI, which measures how fast and how far prices have moved recently on a scale of 0 to 100. In late September it fell below 30, or into "oversold" territory, ⁠which means prices have fallen so quickly that a bounce becomes more likely. Then last week, RSI failed to confirm the Russell's new lows by reaching lows of its own.

The positive RSI setup along with the market's reluctance ​to push the Russell below so many support levels indicates a greater rebound is possible now that buyers appear to have returned. On the way up, the first hurdle is resistance at ⁠the October 6 high near 2,865. Resistance is a level where sellers have tended to show up, like a ceiling. Above that is the 50-day moving average near 2,931. It's falling, a sign that the near-term trend has turned down.

A decisive close below 2,722, ⁠meaning ​a clear finish below that level rather than a brief dip, would raise the risk of a bigger fall. Attention could then shift to the 38.2% retracement at 2,559 and to 2,547, where a gap from April would be filled. A gap is a jump on a chart where the price skips from one level to another with no trading in between. Markets often drift back to fill these ⁠gaps. A drop that far would leave the Russell about 17% below its record. What the chart shows:

(Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not ‌guarantee the outcome. The column ‌does not constitute investment advice or trading recommendations. ) (Terence Gabriel is a Reuters market analyst. The views expressed are ​his own. Editing by Burton Frierson and David Gaffen)