Sell Big, Buy Small

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Tuesday’s trading ended with stocks lower for the second consecutive day in a relatively quiet session. The Dow industrials fell 0.6% while the Nasdaq lost 0.3%, falling below the coveted 5,000 level after closing above it for the first time in 15 years.

With the first of Q2’s earnings set to be reported next week, some concern is being voiced over the ability of U.S.-based multinational stocks to withstand the pressure of a strong U.S. dollar. That pressure has been observable in the large-cap indices, while money has flown into domestically focused stocks represented by the Nasdaq and Russell 2000.

The Commerce Department reported new home sales rose 7.8% in February to an annual rate of 539,000, the highest level in seven years and well above what economists had expected.

The iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) closed down 0.7% after being up as much as 1.3%.

Google Inc (NASDAQ:GOOG) rose 2% after announcing a new CFO. Social media names increased across the broad with Facebook Inc (NASDAQ:FB), LinkedIn Corp (NYSE:LNKD) and Twitter Inc (NYSE:TWTR) making strong gains.

Both the dollar and crude oil closed slightly higher. The greenback rose against the euro, which closed at $1.09, off 0.2%. Oil futures for May delivery rose 0.1% to $47.51 a barrel. Gold for April delivery was up 0.3% to $1,191.40 an ounce. It was the fifth consecutive gain for the metal.

The consumer price index rose 0.2%, excluding food and energy, in February, as expected.

At Tuesday’s close, the Dow Jones Industrial Average fell 105 points, closing at 18,011, the S&P 500 lost 13 points at 2,092, the Nasdaq fell 16 points to 4,995, and the Russell 2000 lost 1 point at 1,263.

The NYSE’s primary market traded 750 million shares with total volume of 3.2 billion shares. The Nasdaq crossed 1.6 billion shares. On the Big Board, decliners outpaced advancers by 1.3-to-1, and on the Nasdaq, decliners led by a slight margin.

DIA Chart
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Chart Key

Although the Dow is still long-term bullish, a combination of a nasty retreat by the Dow transports (see previous Daily Market Outlook) and a pullback off of a lower high in SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) are evidence of near-term weakness in the large caps compared to mid and small caps.

Also, note the volume increase as Apple Inc. (NASDAQ:AAPL) joined the blue-chip Dow 30 index. After absorbing Apple, volume has returned to a more normal level.

IWM Chart
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The iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) is in a powerful bull market. Volume on up days clearly surpasses volume on down days, and MACD is firmly bullish. IWM could pull back from a slightly overbought condition but should be bought on mild corrections.

Conclusion

The Dow indices are not keeping pace with the Nasdaq and Russell 2000, which continue to lead the market.

My suggestion: Move out of big-cap multinational holdings and into mid- and small-cap stocks. However, at this stage it is not wise to chase high-P/E technology stocks since they may be due for a correction.

I highlighted the housing group in the Trade of the Day. With an average P/E of about 16 times estimated 2015 earnings, this is an excellent sector in which to go bargain hunting.

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/2015/03/daily-market-outlook-sell-dia-buy-iwm/.

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