It was clear from the start, Small Caps were leading the way at the beginning of the third quarter. Mixed employment figures from the morning held back stocks until ISM released its manufacturing report showing an increase over what was expected. Small caps and the NASDAQ began to soar on volume as traders rushed in. Over on the NYSE stocks pushed higher but it was clear institutional players weren’t involve over on the NYSE. By mid-day stocks were looking very good, but volume subsided and stocks were being sold off in increasingly lighter trade. The day ended with stocks in positive territory, volume on the lighter side, and Small Caps holding up relatively well given the light volume selling on the major indices.
Wednesday’s price and volume action is one of those days where if you had a set opinion on the market you would feel vindicated. However, looking beyond what opinions are out there the mere fact the Small Cap stocks were able to hang onto majority of the gains shows great promise. Small Caps always lead the market when a new uptrend is formed. It is nice to see this trend to continue. In addition, the NASDAQ cruised higher on big volume in the morning. Volume run rate was higher for much of the morning over Tuesday’s action. It wasn’t until the afternoon where we began to see selling takeover, but it was light volume selling. Institutional players appeared to pile into those stocks listed on the NASDAQ in the morning and simply stepped aside for the remainder of the day.
I have coined a phrase “chop and slop” for this market. It appears the insitutional players are being very selective and continue to wait on the sidelines. Now, we could reverse this trend and establish a new path of least resistance (continue uptrend or begin a new downtrend). However, at this point it appears we’ll simply build a price pattern that will look like rolling hills. Keep in mind although we have the 50dma crossing the 200dma it will be a few more months before we see that moving average begin to trend higher. This could continue to surpress stock prices.
Ultimately, it comes down to the stock leadership. Are quality growth stocks leading the way? Leading stocks did outperform the major stock indexes showing signs this uptrend still has some life. If we can continue to see constructive action exhibited by our quality growth stock leadership there is no reason not to believe this uptrend will stay intact and we’ll be able to see gains coming from them.
Although we did not see quite the ideal reaction you would want to see beginning the quarter the action wasn’t all that terrible. Keep in mind we are bumping up against the fourth of July weekend festivities and light volume is expected. One day doesn’t make a new trend and with the market not continuing Tuesday’s downward movement it was a decent day. If we had added to the losses seen on Tuesday on either light or heavy volume that would have not been viewed as positive action. We’ll take what this market is giving us and we’ll make sure we stay patient and nimble.
