Last week we published a study which demonstrated that when the Russell 2000 (small caps index) goes up 7 weeks in a row, the stock market’s future returns are very bullish.
The Russell 2000 has now extended that rally streak to 8 weeks up in a row.
When the Russell 2000 goes up 8 weeks in a row, the stock market’s forward returns on a 3-12 month basis are very bullish.
This is because the Russell 2000 only goes up 8 weeks in a row during bull markets – it doesn’t go up 8 weeks in a row during bear market rallies.
This is telling us that even though the stock market hasn’t made new highs since January 2018, it is still in a bull market.
Here’s what happens next to the Russell 2000 when it goes up 8 weeks in a row.
Here’s what happens next to the S&P 500 when the Russell goes up 8 weeks in a row.
Click here to download the data in Excel.
This suggests that:
- The stock market could face some more short term downside, but more importantly….
- The stock market’s medium term and long term direction are bullish.
The stock market is demonstrating all kinds of internal bullish price action that is characteristic of bull markets. Remember: extreme strength usually begets more bullish strength.
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