Small Caps Attack Resistance

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Small- and mid-cap stocks outpaced their larger counterparts Monday. While the Dow industrials rose less than 0.1%, they set their 29th record close of the year. The S&P 500 hit its 46th closing high, adding 0.3%, while the Nasdaq rose 0.9%, and the Russell 2000 was up 1.2%.

The Dow’s underperformance was largely due to big hits taken by two of its components, both in the telecommunications sector. Verizon Communications Inc. (VZ) fell 1.4% following a downgrade to “neutral” by Citigroup Inc (C). AT&T Inc. (T) lost 1.6% for no apparent reason other than a technical break of its 50-day moving average.

Technology stocks did well, rallying behind Apple Inc. (AAPL), which rose 1.9%. The biotech group surged again with the iShares NASDAQ Biotechnology Index (ETF) (IBB) up 1.7%.

With a shortened Thanksgiving week, volume is likely to decline but volatility could pick up. Economic news was almost non-existent Monday, but the second adjustment of Q3 GDP and the Federal Reserve’s reading on inflation will be highlighted later this week.

China’s announcement of lower interest rates may have had an impact on Monday’s opening. And Europe appears to be taking a more practical approach to their economic woes, and that, too, helped our markets.

Gold fell 0.2% to $1,195.50 an ounce, and crude oil futures lost 1% at $75.78 a barrel.

At Monday’s close, the Dow Jones Industrial Average rose 8 points to 17,818, the S&P 500 gained 6 points at 2,069, the Nasdaq popped 42 points to 4,755, and the Russell 2000 rose 15 points to 1,187.

The NYSE’s primary market traded 709 million shares with total volume of 3.1 billion. The Nasdaq crossed 1.6 billion shares. On the Big Board, advancers outpaced decliners by 1.6-to-1, and on the Nasdaq, advancers led by 2.4-to-1.

Russell 2000 Chart
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Chart Key

The small-cap Russell 2000 began the week with a solid thrust at the resistance line at 1,187, closing out very near the high of the day — a positive sign. MACD is arching up and is now close to a buy signal. First support rests at the 20-day moving average at 1,170, with more solid support at the 200-day moving average at 1,149.

In order to make a successful probe of the double-top at 1,213, the Russell 2000 must first pierce the stubborn resistance at 1,184 to 1,187.

Conclusion

With buyers now eyeing the mid- and small -caps, it appears that a healthy round of group rotation is emerging. However, a shortened trading week is not usually the venue for an important move higher. Thus, we may have to wait to see how this pattern evolves. But unless we are being led astray by a low-volume bull trap, the stage is now set for a mid- to small-cap challenge of the March and July highs.

Absent a nasty international problem, I see nothing to hold the indices back. However, the march forward has been so slow that caution is warranted. Whatever is bought should be protected with tight stops to ward against a lump of coal before the Thanksgiving Day Parade.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2014/11/daily-market-outlook-russell-2000-attacks-resistance/.

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