Small-cap stocks took flight this past week, holding support above the 681 zone early, then climbing back through the recent highs during Friday’s brisk rally. Russell 2000 (NYSE:IWM) generated a bullish “engulfing” pattern on weekly candlestick charts, which is a positive signal heading into this week’s action.

The engulfing pattern (which is the same as an outside formation on traditional charts) is fairly rare on weekly studies. In fact, I spotted only five similar formations over the last 18 months in the Russell. The immediate effectiveness of these patterns is lukewarm, but they do tend to presage further upside action in the weeks to come.

The market continues to build a solid foundation from the January and March lows, which could be beneficial over time. As long as the Russell 2000 can hold above 681/672, the odds favor the upside (which made this past week’s action an important development). From a shorter time horizon into next week’s trading, a slide back below 700/695 would endanger the gains hammered out last week.

As I noted in previous commentary, there is a bullish cross...

---You can read the FULL article when you register (registration is free!) or sign-in to SmallCapInvestor.com---