Bearish Divergence Builds in U.S. Small CapsUS Small Cap 2000 CFDFOREXCOM:US2000FOREXcomThe U.S. small-cap contract has struggled above 2492 recently, delivering multiple failed bullish breakouts from the high established on September 23. With bearish divergence between price and RSI (14) evident, the longer this iffy price action persists, the more it may encourage bears to seek out a larger downside flush. Should we see another failed breakout attempt above 2492, shorts could be established beneath the level with a stop above the recent highs to protect against reversal. 2450 is the first downside level of note, albeit a minor one. For shorter-term types, it’s a potential target, although uptrend support running from September 2 screens as a more important level should we see a pullback. If the price were to crack that level convincingly, it may spark a faster unwind towards the 50-day moving average, which the contract bounced strongly from the last two times it was tested. Both levels provide targets for longer-term traders. As a reminder, the underlying Russell 2000 index remains very much a play on the U.S. interest rate outlook and, consequently, broader domestic economic conditions. With nearly four rate cuts priced by the Fed’s September meeting next year, it’s provided meaningful tailwinds for non-profitable, capital-reliant firms without sparking any real concern about a looming U.S. recession. However, with few signs the government shutdown will end anytime soon, coupled with prominent headlines surrounding private debt markets and iffy price action in other riskier asset classes, it’s not difficult to see potential macro landmines. Tailwinds from any increase in rate cuts would likely be overridden quickly if driven by concerns about increased volatility stemming from another economic downturn. For small-cap bulls, there is such a thing as too much of a good thing when it comes to the magnitude and speed of rate cuts. Be careful what you wish for.