Thursday’s session was relatively quiet, especially in the large-cap arena, with the major indices almost unchanged.
The big financial news of the day was the Bank of England’s surprising new stimulus package. The central bank reduced its interest rate by 25 basis points to 0.25% — a record low. The British pound fell against the U.S. dollar, and the Stoxx Europe 600 gained 0.7%, while the country’s banks rose 1.3%.
On this side of the pond, the technology sector continued its advance, up 0.5%. Microsoft Corporation (NASDAQ:MSFT) rose 0.7% and Facebook Inc (NASDAQ:FB) jumped 1.5%. Chipmakers continued their rally with gains in ASML Holding NV (ADR) (NASDAQ:ASML), up 1.5%, and Micron Technology, Inc. (NASDAQ:MU), up 3.9%.
At Thursday’s close, the Dow Jones Industrial Average fell 3 points to 18,352, the S&P 500 broke even at 2,164, the Nasdaq rose 7 points to 5,166, and the Russell 2000 gained a point at 1,214.
The NYSE Composite’s primary exchange traded 818 million shares with total volume of 3.5 billion. The Nasdaq crossed 1.9 billion shares. On the Big Board, advancers outpaced decliners by 1.3-to -1, and on the Nasdaq, advancers led by 1.1-to-1. Block trades on the NYSE fell to 4,556 from 5,070 on Tuesday.
Some of our readers may wonder why I’ve featured chip stocks as the Trade of the Day for the past two days. The answer can be seen in chart of the iShares PHLX Semiconductor (NASDAQ:SOXX).
Following a cup-and-handle formation that took about four months to develop, SOXX broke out in late June, but was greeted by some high-volume profit-taking. Sellers drove the ETF down from a closing high at $96.92 to its 200-day moving average at about $88 in just three days.
But a reversal occurred following a successful test of the 200-day, and SOXX established a new bull channel that jumped to a Collins-Bollinger Reversal (CBR) sell signal at over $106 on July 27. But that sell signal had volume offsets that reduced its significance. And the past two days have produced a rally from the bullish support line of the channel.
Conclusion
The small caps have taken the field following an institutional overcommitment in large-cap, high-dividend stocks. This is confirmed by a run in the Russell 2000, which is up 5.4% since the end of June compared to 3.1% for the S&P 500. And small and mid caps outperformed eight of the 10 S&P sectors in July.
It seems that since the Fed is loath to raise rates, investors have taken a more aggressive approach. In other words, risk is back on.
This week, I featured semiconductor stocks Cypress Semiconductor Corporation (NASDAQ:CY) and Intersil Corp (NASDAQ:ISIL) as the Trade of the Day. Both are getting their house in order and pay above-average dividends. But don’t chase these smaller stocks. They are extremely volatile, and that can be used to your advantage. Buy them at their “buy under” prices, not the current market price, and enjoy the ride.
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.
