The major indices scored small gains on Thursday with light volume in response to soft economic data. This was in contrast to the small-cap Russell 2000, which popped almost 1% after lagging for weeks. Biotech stocks also rallied, with iShares Nasdaq Biotechnology (IBB) up 1.9%,which helped the Nasdaq gain 0.6%.
Existing home sales for April rose 1.3%, which was below expectations of 2%. Weekly initial claims increased from 298,000 to 326,000, above expectations of 305,000. And the Conference Board’s leading indicators increased 0.4% for April, missing economists’ target by a small margin.
At Thursday’s close, the Dow Jones Industrial Average rose 10 points to 16,543, the S&P 500 gained 4 points at 1,892, and the Nasdaq jumped 23 points to 4,154. The NYSE traded a total of 2.8 billion shares, and the Nasdaq crossed 1.8 billion shares. On the Big Board, advancers outpaced decliners by 1.8-to-1, and on the Nasdaq, advancers led by 2.1-to-1.
The Russell 2000 made a show of strength Thursday, but it is caught in a squeeze between the downtrend line at 1,120 (resistance) and the neckline of a possible head-and-shoulders breakdown at 1,083.
Michael Ashbaugh noted that Tuesday’s downturn was “driven by a volume spike,” which was the highest volume since March 4, when the index made a new high.
Conclusion: Even though the Dow Jones Transportation Average made a new all-time high Thursday, the other major indices floundered, barely making headway. So the Russell 2000 is the focus of the question that dogs the stock market: Can the broad market, including the small caps, move to new highs?
The larger-cap indices like the S&P 500 have a solid floor of support. But the Russell has very shallow support and big potential downside as it flounders below its 200-day moving average. It is possible for the Russell to break its support and head to about 1,000. And a breakdown of 100 points would almost surely have an impact on the broader market.
Thus, until the Russell 2000 gives a clear indication of its near-term direction, I suggest buying being very discerning with stock purchases while accumulating a cash reserve.
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.