Small and Mid Caps Finally Take the Lead

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The Federal Reserve held interest rates near zero but indicated it would likely hike rates in December. Stocks fell immediately following the release of the FOMC minutes, but then rallied into the close.

The Dow Jones Industrial Average and S&P 500 both finished up over 1%. But mid- and small-cap stocks led the market with the Nasdaq up 1.3% and the Russell 2000 up 2.9%.

Apple Inc. (AAPL) spiked 4.1% after reporting better-than-expected earnings and revenues. This boosted the technology sector, which gained 1.5%.

Financial stocks also gained ground, up 2.3%. Bank of America Corp (BAC) led the group, up 5.4%.

But the star of the day was the energy sector. It added 2.2% on the largest gain in oil prices in two months. Crude jumped 6.3% to $45.94 a barrel.

With the strong response to the Fed minutes, we might have expected more from biotechnology stocks, but iShares NASDAQ Biotechnology Index (ETF) (IBB) rose just 1.3%. The fund was restrained by a 2.6% loss in Gilead Sciences, Inc. (GILD) despite the company’s better-than-expected quarterly report.

Gold fell to a two-week low at $1,152.10. The euro was down 1.2% against the U.S. dollar at $1.0915 after falling to its weakest level since early August

At Wednesday’s close, the Dow Jones Industrial Average rose 198 points to 17,780, the S&P 500 gained 24 points at 2,090, the Nasdaq jumped 66 points to 5,096, and the Russell 2000 spiked 33 points to 1,179.

The NYSE Composite’s primary exchange traded 1 billion shares with total volume of 4.7 billion. The Nasdaq crossed 2.1 billion shares. On the Big Board and Nasdaq, advancers outpaced decliners by 3.6-to-1. There were 5,603 block trades on the NYSE compared to 5,770 on Tuesday.

MDY Chart
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Chart Key

The SPDR S&P MidCap 400 ETF (MDY) jumped through a significant resistance line at $262 on Wednesday. Most importantly, it rose on higher-than-average volume. The next significant barrier is the 200-day moving average at $270, 2% above Wednesday’s close.

IWM Chart
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The iShares Russell 2000 Index (ETF) (IWM) also sliced through significant resistance and established its 50-day moving average as a solid line of support.

Like MDY, the next major resistance is at the 200-day moving average at $120.79. But this barrier is further away than with MDY, at more than 3% above the market.

Conclusion

I’ve been critical of the lack of performance of small- and mid-cap stocks, but they took up the slack on Wednesday, and their response was supported by high volume.

Nevertheless, there are divergence issues, especially with regard to the Dow’s lack of a solid confirmation between the industrials and transports. The Dow Jones Transportation Average rose just 0.1% Wednesday while the Dow Jones Industrial Average gained a solid 1.1%.

My guess is that the high volume supporting Wednesday’s advance won’t continue. The buy-side volume is only modestly higher, but can it rise enough to punch the major indices to new highs?

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/2015/10/daily-market-outlook-small-and-mid-caps-finally-take-the-lead/.

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