All major U.S. indices closed essentially unchanged last week except for the small-cap Russell 2000. While this index has been a weak spot in 2015, it gained 2.3% last week and is now challenging major overhead resistance. 

I’ll take a more in-depth look at this index and its potential implications for the broader market later in this report. But the highlight heading into this week was investor indecision — the kind that leads into new intermediate-term price trends.

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The benchmark S&P 500 began the week at precisely the same level it closed at on Oct. 28 — 2,090. I continue to view this general area as a major decision point. The market must either break major overhead resistance levels that are currently being tested — and soon — or run the risk of another pullback that could retest the September/October lows.

The best-performing sectors of the lackluster week were consumer staples, up 1.8%, and real estate, up 1.5%, the latter of which has benefited from the recent slump in long-term U.S. interest rates. Bringing up the rear was defensive utilities, which lost 1.5%.

Small Caps At Major Crossroads
Weakness in market-leading small caps has kept a lid on the stock market in 2015; however, help may soon be on the way.

The three most recent bottoms in the Russell 2000 — in late August, late September and mid-November — have traced out a potentially bullish chart pattern known as an inverse head-and-shoulders. This pattern would be confirmed this week by a sustained close above overhead resistance at 1,202 to 1,215, the 200-day moving average.

Should a breakout occur, it would target a move to 1,300, which is 8% above Friday’s close and would essentially be a retest of the June highs.  

More strength in small caps, especially accompanied by a sustained rise above major resistance at 5,133 in the Nasdaq Composite, would clear the way for a Santa Claus rally and potentially some follow-through buying into early 2016.

Seasonality Favors A Good December
The stock market has a strong tendency to strengthen during the fourth quarter. Below we see December is actually the seasonally strongest month of the year in the S&P 500 based on data since 1957. On average, it gained 1.51% for the month and has posted a positive December close 74% of the time.

This seasonal trend supports overall strength in the stock market heading into year end. It may be enough to push the Russell 2000 and Nasdaq Composite through their overhead obstacles and portend more market strength in early to mid-2016.

A Sign Of Life In The Commodity Space
Despite some modest signs of encouragement this week in the stock market, widespread weakness in commodity prices continues to warn of emerging global deflation. If this is indeed happening, it could put a damper on U.S. economic performance next year. 

One particular area of weakness lately has been economically sensitive copper prices. In the Nov. 16 Market Outlook, I pointed out a breakdown in the iPath Bloomberg Copper Sub Total Return ETN (NYSE: JJC) that targeted a 5.5% decline to $23.75. That target was met on Nov. 20.

Since then, JJC has attempted to stabilize, but this could merely be the result of short covering following such a sharp decline from the investor indecision area shown on the chart. JJC, and the copper prices it represents, remains in the midst of a major bearish trend that originated in 2011 with no clear sign of a meaningful bottom yet.

Of the long list of commodity markets that I track every week, there is only one that has been showing any signs of life lately: lumber.  

Perhaps due in part to strength in the housing sector this year, lumber prices bottomed in late September. On Friday, the iShares Global Timber & Forestry (Nasdaq: WOOD) edged above its 200-day moving average, a widely watched major trend proxy.

The lower panel shows this recent strength was fueled by an increase in the total net assets invested in the ETF. These assets moved above their 21-day moving average in early October to indicate a monthly trend of expansion.

In a year that has offered few good alternatives to a sluggish stock market, I view WOOD — and lumber-related assets in general — as an emerging investment opportunity as we head into the new year. The key is what happens from here.  

Specifically, WOOD must remain above its 200-day moving average to indicate an emerging major uptrend. We must also continue to see expansion in total net assets to confirm the rise from the September lows is directional and not just a rebound within the larger bearish trend, as defined by the 200-day, which began in July. The jury is still out on that, so stay tuned to this space for updates.

Putting It All Together
The benchmark S&P 500 began this week precisely where it was one month ago as a number of other major indices, including the Nasdaq Composite and Russell 2000, continue to hover just below major overhead resistance levels. This indicates near-term indecision/apprehension, as investors have lacked the bullish conviction to push the market to new highs.  

As I stated last week, my cautiously bullish market outlook will remain intact as long as the S&P 500 can hold minor support at 2,021. However, I’m waiting for a rise above these resistance levels, including 5,133 in the Nasdaq Composite and 1,215 in the Russell 2000, to confirm a new sustainable advance is beginning before putting any additional money to work.

And while the stock market continues its year-long process of deciding whether the economy is strong enough to support new highs, I will be closely watching lumber prices as a potential new alternative investment opportunity. 

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This article was originally published on ProfitableTrading.com: Watch This Alternative Investment for a Buy Signal