The Russell 2000 Index of small-company stocks has been a dud for much of 2015.
Nevertheless, small-cap stocks are about to enter bullish seasonality, and the Russell 2000 chart is outright fascinating.
In terms of seasonality, December is the best month of the year for stocks, in general, and for small-caps, in particular.
Starting around mid-December, small-cap stocks tend to outperform large-cap stocks.
Russell 2000 chart
As the weekly bar chart shows, the Russell 2000 is bumping against major resistance. There is ascending four-year-trend-line resistance and the red bar, made up of the March, June, December 2014 highs, and March and May 2015 lows.
The daily chart offers some very specific short-term insight.
Although the Russell 2000 was able to surpass the September and November highs (blue bubble), there was reason to expect a pullback.
The November 29 Profit Radar Report warned that: "The Russell 2000 is overbought. Prior to catching this bullish seasonal tailwind, small-caps will likely have to digest recent gains. The odds for a pullback are elevated."
Based on stock market seasonality, the pullback is likely to morph into a shorter-term buying opportunity. Why not long-term?
For the first time since 2009, the U.S. stock market is displaying signs of buyer’s fatigue. There’s less money chasing stocks.
This kind of condition tends to develop leading up to major tops (detailed report available here) — at least that’s what happened in 1987, 2000 and 2007.
Typically, when buyers become more selective, they prefer buying large-caps over small-caps. (Large-caps have more perceived safety.)
Based on the above report, it is likely that the stock market is entering the final stage of this bull market, which will likely hurt small-cap stocks once the bullish tailwind fades away next year.
Finding support around 1,165 (green line) or breaking above red resistance would be an indication that the Russell 2000 is ready to take advantage of bullish seasonality.
Any gains should probably be taken or protected to avoid an eventual relapse.