With an new administration inbound in Washington, D.C., may now be a great time to leap into small-cap shares?

When you’ve heard this maxim based mostly on the Presidential Election Cycle Principle, it has some fact to it. Small-caps are likely to thrive after presidential elections as consideration shifts to home points and governance. Since 1980, the Russell 2000 has averaged a 15% return in post-election years, outperforming large-cap shares by about 4 proportion factors.

Since we’re occupied with seasonality, what about small-cap seasonality on a year-round foundation? How do small caps seasonally carry out all year long, and is it a great time to leap in now?

Let’s get straight to it, beginning with a 10-year seasonality chart of iShares Russell 2000 ETF (IWM), our small-cap proxy. When you click on on the hyperlink above, you should definitely toggle the timescale to 10 years (the chart’s default interval is 5 years).

FIGURE 1. 10-YEAR SEASONALITY CHART OF IWM. Word that November is IWM’s strongest month. The typical increased shut charge is the quantity above the bars, whereas the typical returns are on the backside of the bars simply above the months.Chart supply: StockCharts.com. For academic functions.

During the last 10 years, November has been IWM’s strongest seasonal month, averaging a 90% increased shut charge and an almost 6% month-to-month return. Whereas December and January are seasonally tepid, February by July are constantly robust. With 2025 following an election 12 months, buyers might discover small caps a lovely funding alternative.

If you wish to add the Russell 2000 to your portfolio, you will wish to fine-tune an entry level. However how? First, look at a weekly chart of IWM to know the bigger context of the index’s present value motion.

FIGURE 2. WEEKLY CHART OF IWM. It helps to concentrate to the resistance ranges going again to 2020.Chart supply: StockCharts.com. For academic functions.

Take a look at the 2 resistance ranges marked by the magenta and blue dotted strains. Discover the issue IWM skilled breaking above the primary stage (magenta), at $224, from the tip of July to November, forming an ascending triangle. As IWM broke by that contested stage, it additionally broke above the second stage of resistance (blue line) and its all-time excessive at $234.50.

Having pulled again barely after breaking by two main resistance ranges, bulls aiming so as to add positions are most likely on the lookout for a well-timed entry level. Let’s shift to a every day chart.

FIGURE 3. DAILY CHART OF IWM. Control the swing lows marked by the blue dashed horizontal strains.Chart supply: StockCharts.com. For academic functions.

First off, IWM’s technicals show power, as proven by the StockChartsTechnicalRank (SCTR) line, presently sitting slightly below the bullish 90-level threshold. Nonetheless, the 2 volume-based indicators—Chaikin Cash Circulate (CMF) and On Steadiness Quantity (OBV)—present a stark divergence. This will point out, amongst different issues, that promoting strain is distinguished on the institutional aspect, whereas retail buyers are driving up shopping for strain (institutional gamers have the higher hand in most instances).

As IWM’s value pulls again, be aware of the swing lows, every marked by a blue dotted line within the chart. Although you possibly can anticipate these ranges to function help, I would be cautious if the value closes beneath $215. Not solely would that invalidate the near-term uptrend (not seeing increased highs and better lows), however it might additionally fall into a variety muddled with historic congestion (as seen within the weekly chart).

If IWM bounces above $226 or $215, have a look at the volume-based indicators to see if shopping for strain on each signifies bullish alignment. Route in quantity typically precedes value, so keep watch over every. Hopefully, a robust bounce on excessive quantity will mark a well-timed entry into the index ETF.

On the Shut

Small-cap shares have a historical past of shining in post-election years and thriving in particular seasonal home windows, like November and the spring months. However timing is all the things, so add this chart to your ChartList and watch the degrees and indicators mentioned above. Ought to circumstances shift favorably, you possibly can resolve whether or not it is the appropriate time to drag the set off.

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and methods ought to by no means be used with out first assessing your individual private and monetary scenario, or with out consulting a monetary skilled.