How to Play Financials with the Russell 2000 Futures

How to Play Financials with the Russell 2000 Futures
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With the fed raising rates during the FOMC meeting traders saw a rally into the event in the Russell 200 futures and in financial stocks. The fed raised rates as anticipated but financials sold off. This pattern is typical as historically after the fed raises rates the financials sell-off. But why?

We can look at different theories sell the news, it was anticipated, and profit taking. The following day post FOMC financials are back on their giddy-up horse rallying to the highs!

You're probably asking “Lance why the Russell 2000 futures, not the S&P Futures or DOW Futures?” Answer: Financials specifically regional banks make up a large portion of the Russell 2000.

Tip on popular financial websites or trading platforms there is a heat map visualization image so you can see the stocks that make up the Russell 2000 futures.

Looking at the chart below of the Russell 2000 futures. 

Source: TD Ameritrade’s Thinkorswim Platform.

One of the indicators I like to use is my dynamic trend indicator which you can see a fresh up arrow on the Russell 200 Futures indicating bullish price action. Additionally, you see here multiple time frames are also green indicating a bullish bias for the daily, weekly and monthly time frames. If you were in agreement and bullish the market, areas of possible support you might look at to be around 1505 which was a recent low and below that could be around the 1494 area 

Upside resistance, I would think that 1562 could be a possible target, the market high for the Russell 2000 futures (RTY) and if this high is taking out there could be the possible chance that the Russell price moves to 1600. Why 1600 you ask? Mostly the emotional level that people see with big round numbers! Plus doesn't Russell 1600 sound amazing.

Remeber the trend is your friend and if this market keeps going higher the bears may go back into hibernation but the bank stocks will be the driving force behind the strength in the Russell.

The key to trading is risk vs. reward always know the max loss of a position. The first thing when initiation a trade should be what is the most amount of money I can lose. If it fits your risk tolerance then analyze the current market conditions. I am a trend trader so until the trend changes to the downside in the financials, I will continue be looking for opportunities to get long the Russell 2000 futures.

 

Happy Trading!

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