Russell 2000 Seasonality – Is a Sell off Coming?

The Russell 2000 traded to a new record high this week.  Traders on wall street are celebrating.

In the meanwhile, the Russell 2000 Seasonality is warning traders that the usual annual sell off could happen at any time.

Before I show you some charts, it’s important to read here about stock market seasonality is.


What Does Russell 2000 Seasonality Look Like?

Here is a chart of Russell 2000 seasonality.

This chart represents the average monthly moves of the last 20 years.  The exact period is from 1990 to 2009.

One of the most noticeable aspects is how the Russell 2000 Index tends to get bearish starting in June and bottoms out in late October.

This Russell 2000 seasonality chart looks very similar to the overall SP500 index chart also.


Now that you know the seasonal weakness of the Russell index, you might be wondering how often does this seasonality ring true?

Let’s look at another chart to answer that question.

Russell 2000 Seasonality Accuracy

The chart below is very remarkable, and shows that the seasonal pattern occurred a total of 17 out of 30 years.

That is a total of 56%, which may not be a certainty but should definitely be respected.

One thing you will notice is that when Russell 2000 seasonality is accurate, the extent of the drop is very large.  In 2009 it dropped over 25%, the same as the big 1987 stock market crash.

In the 13 years in which the Russell 2000 index actually increased, the size of the rally was not as significant.

So what does this mean in a simple sentence?




Russell 2000 Seasonality – Conclusion

You cannot afford to ignore the Russell 2000 seasonality trend, because if you do the consequences can be disastrous.

Weak seasonal trends are a warning, but not a certainty.

As a trader, you should be protecting your open long positions at the very least.

We will be looking at initiating some bear put spreads to take advantage of the weakness, and get more aggressive as the drop accelerates.

If the Russell 2000 continues it’s bullish run and defies seasonality, we will quickly cut our losses and move on to the next opportunity.

In the end, professional traders always manage risk first and foremost.


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The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.