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SMALL-CAP BULLS LIKE WHAT THEY SEE IN THE MIRROR

It's been a strong year for small-cap stocks. The Russell 2000 .RUT is up 20.6% so far in 2026, more than double the S&P 500's .SPX 10.2% gain.

For small-cap bulls, that outperformance could be more than just a short-term move. Some chart watchers continue to point to a technique known as mirror image foldback forecasting, which suggests small caps may be in the early stages of a much larger shift relative to large caps.

Small caps have already been attracting attention on a relative basis since the summer of 2025. Since the RUT/SPX ratio bottomed in July of last year, the Russell 2000 has gained more than 35%, compared with a roughly 19% advance for the S&P 500.

Looking at a long-term monthly chart of the RUT/SPX ratio, traders see a pattern that appears surprisingly symmetrical over time.

After bottoming in 1999, small caps outperformed large caps for more than a decade, with the ratio peaking in a double top around 2011 and 2013. What followed was another decade-plus stretch in which large caps steadily took the lead.

The interesting part, according to proponents of mirror image foldback forecasting, is that July 2012 appears to serve as a pivot point. The price action before and after that date shows a notable degree of inverse symmetry.

The move from the March 1999 low to the March 2011 high lasted 144 months. July 2012 fell almost exactly in the middle of the double-top formation, sitting 16 months after the first peak and 14 months before the second. It was also 160 months removed from the March 1999 low.

Using those time relationships, technicians projected forward 144 months from the September 2013 high and 160 months from the July 2012 pivot. Both calculations pointed to a window around September-November 2025. The ratio's July 2025 low at 0.3489 fell close enough to that zone to catch the attention of chart analysts.

The key question now is whether that low marked the beginning of a longer-term period of small-cap leadership. The path is unlikely to be smooth, but if the pattern continues to hold, small caps could still be in the early stages of a multi-year stretch of outperformance. The ratio currently stands at 0.3967. One potential upside target is its February 1994 peak of 0.5694. Applying the same symmetry principles, technicians note that the March 1999 low came 61 months after that high. If the pattern repeats, the ratio could revisit that level about 61 months after the July 2025 low, putting the target date around August 2030.

For now, the July 2025 low remains a key line in the sand. As long as the ratio stays above it, the mirror-image thesis remains intact. A monthly close below that level, however, would crack the mirror and call the entire setup into question.

(Terence Gabriel)

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