Strong numbers from the retail sector and homebuilders drew buyers into small- and mid-cap stocks, pushing the Nasdaq over 4,000 for the first time in 13 years.
The Commerce Department released data that showed an increase of 6.2% in building permits in October, the best numbers in over five years. And the S&P/Case-Shiller 20-City Composite Home Price Index rose 13.3% for September versus an expected 13%.
At Tuesday close, the Dow Jones Industrial Average gained less than 1 point at 16,073, and the S&P 500 was also flat at 1,803, but the Nasdaq rose 23 points to 4,018. The NYSE primary market traded 828 million shares with total volume of 3.3 billion shares. The Nasdaq traded total volume of 1.8 billion shares. Advancers beat out decliners on the Big Board by 1.3-to-1, and on the Nasdaq by1.8-to-1.
The CBOE Volatility Index (VIX), sometime called the “Fear Index,” has been complacent, remaining under 14.50 for much of the year. Tuesday’s close of 12.81 is very calm indeed. Spikes in VIX usually accompany talk of imminent Fed tapering, but the headlines read, “Fed Will Taper in March” (CNBC).
Tuesday’s focus was on the Nasdaq’s break to a new 13-year high, which thrust the index above the round number 4,000. The junior index joined the Dow industrials and the S&P 500 in successfully penetrating major round numbers that represented more of a psychological challenge than a technical barrier.
Conclusion: Small- and mid-cap stocks were at the forefront of Tuesday’s advance, which was again fueled by a degree of confidence on the part of investors that the Fed will continue its present course of easy money well into 2014.
So far, my theory that the large caps should come under buying pressure hasn’t worked out. They’ve been doing just fine, but not gaining at the pace of the small and mid-caps.
Some market analysts are strongly recommending that investors sell high-P/E stocks and small caps now in anticipation of a deep round of profit-taking. But those folks have been saying that for months, and where has it gotten them?
There is no rule that these stocks must be fleeced before year-end. Thus, I think it best to use trailing stops on positions with the biggest gains and ride the current run as far as it takes us. This old fisherman knows that you should “never leave fish to catch fish.”
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.