The Russell 2000 (small caps index) is on the verge of making a DOWN “inside month”. A DOWN “inside month” is when:
- The market goes down this month, AND…
- This month’s HIGH is below last month’s HIGH, while this months LOW is above last month’s LOW.
More specifically, September has been a DOWN “inside month” after it went up last month (in August).
Traditional technical analaysis (candlestick patterns) sees this as a bearish sign for the stock market because it’s supposed to signify a trend reversal sign. The data proves otherwise.
Here’s what happens next to the Russell (historically) when it makes a DOWN “inside month” after going up the previous month.
As you can see, the Russell 2000 has a very strong tendency to go up 3 months later. Longer term returns (6-12 months) aren’t consistently bearish either.
Here’s what happens next to the S&P 500 when the Russell makes this kind of DOWN “inside month”.
This study suggests that the U.S. stock market will go up for the final 3 months of 2018.
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