The market has endured two tough months. The wave of high volume selling in June was enough to spook the masses out of the market and shifted the sentiment from bullish to bearish. But just recently we have seen big money accumulate in stocks at these oversold prices, which has me thinking we just may be headed higher sooner rather than later.

During market reversals we typically see the more sensitive stocks move first, which are the small cap and tech stocks. Then a couple days later we see the brand name stocks (big cap, energy and banking) follow. It’s these large sectors which provide the power in trends.

Taking a look at the graph below you can see on the far right both tech and small caps are leading the market higher and — as of Wednesday — the power sectors (energy and financials) started to move higher also. So if things play out I expect the S&P 500 to follow the small caps higher over the next one-to-three weeks.

If we take a look at the charts to see how each of these sectors have been performing you will notice that the small caps — the iShares Russell 2000 Index ETF (NYSE: IWM) — and the tech stocks — Technology SPDR (NYSE: XLK) — broke out one day before the energy and financials did. This is very typical to see and it also works for playing gold. I have seen gold stocks lead the price of gold bullion up to seven days before gold bullion started to move. It’s these little golden nuggets of info which can not only save you money but make you even more when put to work.

Mid-Week Trading Conclusion:
I feel the market has been forming a base for almost three weeks. Just last week we saw the big sectors (financials and energy) reach their key support levels from several months back and that should trigger a sizable bounce and with any luck the start of another leg higher in the market.

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