Small-cap stocks rallied back into the shadow of all-time highs last week, with the Russell 2000 index popping through trendline resistance from the early June peak while also moving decisively back above the 20-day moving average.

The index opened on a strong note Monday and never looked back, which meant that a hard test of buyer resolve below the 830 swingline never came into play. Last week’s action eased jitters about some modest topping patterns that had popped up on the charts, and any move to new record highs this week would put those issues in the rearview mirror.

I prefer to see a decisive move accentuated by volume, which obviously wasn’t the case on a holiday-shortened week, but we did see stocks hold on to the gains through the employment report on Friday, which is a good sign. Interestingly, the last two times the market was higher on a jobs day, the move was extended briefly, then a correction took place. Since we’re up against record highs, the test of resistance is clear to watch this coming week.

For now, small caps remain in an impressive long-term bull market trend, and there are no decisive topping signs or reversal patterns to call that trend into question. However, if we don’t extend last week’s push to fresh record highs, there will be some caution in the wind. In addition, a slide back below 830/820 without new highs would be a particularly troubling development, so the market is still not out of harm’s way.

If you are a long-term long sitting on sizable profits, there is still no reason to exit, but you should be putting together a profit-taking strategy, in which a decline through specific support points would trigger partial liquidation.

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