From the Trading Desk

Small and Mid Caps close lower as the Dow hangs on for Another New High

A late day 15 minute rally helped save the Dow, S&P 500, and the NASDAQ from closing on their lows of the session. Just after the 2pm hour sellers began to sell until the lows of the session at 3:30pm EST when buyers stepped up saving the markets from closing on their lows. The same could not be said for the Russell 2000 and S&P 400 as both indexes ended just off their lows in the red. For the second straight day Small Caps have diverged from the general market signaling rotation out of beta and into low beta stocks. This uptrend has been dominated by the Dow and continues to be dominated by the blue chip index. While we can make up excuses for this rally to end we’ll let our price indicators to do the talking.

Another area of that has some interest is breadth of this market rally. Today the NYSE saw losers on top by about a 3 to 2 margin. The same goes for the NASDAQ. Typically, we’d see breadth expanding in a market rally. However, as of late it has beginning to favor losers rather than winners. Perhaps this market can continue to rally on fewer and fewer stocks. At some point we’ll need to see breadth return to the market if this uptrend will continue.

The big jump at the open came from Healthcare stocks like UNH, HUM, and DVA. Medicare rates are set to move higher by more than 3% rather than rate cuts. For most of the day these stocks looked great and DVA was able to carry it into the close. UNH and HUM were not able to hang onto the gains and formed bearish candlesticks. One day doesn’t make a trend, but confirmation signal for these stocks would signal downside risk for the sector.

Financials were able to hold up relatively well despite a few big names under their 50 day moving averages like MS, JPM, and GS. One group not holding up well and crossed under its 50 day moving average was the SOX index today. Forming a small head and shoulders pattern the index broke thru its neckline and 50 day. Whether or not this is a sign of things to come remains to be seen and as of now the SOX is signaling lower prices are probable.

Gold, silver, and copper were hit today, but crude oil and natural gas were able to find support. GLD and SLV are in downtrends and have been for some time. Oddly enough the US mint can’t crank enough silver coins to meet the demand. Demand side of the equation says to sell SLV and buy the actual coins and to forget about why this is the case! Follow price it will not let you down.

Tomorrow we’ll get a read on jobs from the ADP report and from the ISM non-manufacturing. Perhaps the service side of the economy can pick up the slack from the lower than expected growth on the manufacturing side. Uptrend is still intact and we’ll continue to roll with it.

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