The March E-mini Russell 2000 Index traded lower overnight as breaking news from China pressured demand for higher risk assets. Although the initial reaction suggested the start of a hard sell-off, the market is coming back slightly ahead of the opening. Like they did last week after the Federal budget cuts looked like a done deal, investors may shed this news, instead choosing to focus on the fact that the Fed is going to continue its asset buyback program indefinitely.
Technically, the main trend is down on the daily chart. It is going to take a move through the recent top at 920.50 to turn the main trend back to up. Besides the strong comeback rally after testing 892.60, the index has also regained a pair of major long-term uptrending Gann angles at 907.10 and 906.10. This action suggests that investors are buying the dips rather than strength.
Based on the main range of 933.20 to 892.60, a key retracement zone has been formed at 912.90 to 917.70. This morning the index is testing the lower, or 50% level at 912.90. Sustaining a move over this level should trigger a rally to the Fibonacci price at 917.70. Before it reaches this level, however, it has to break through a downtrending Gann angle at 917.20.
Since the market is testing a major retracement zone, traders should anticipate a choppy two-sided trade until the index can shed this area.