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Follow the Smart Money’s Lead on Any Correction

Large institutions have indicated that they are ready to pounce on weakness


On Monday, technology stocks and some small caps bounced, but overall trading was mixed. And precious metals rallied following rumblings of lower reserve requirements to small- and mid-sized banks.

With about 90% of the S&P 500’s companies reporting earnings, the group is on track for a gain of 2.1% for Q2. FactSet estimates that this is a slowdown from the 3.4% reported in Q1.

Gains by BlackBerry (BBRY) and Apple (AAPL) helped the technology sector lead and also boosted the Nasdaq 0.27% for the day.

At Monday’s close, the Dow Jones Industrial Average was off 6 points at 15,420, the S&P 500 fell 2 points to 1,689, and the Nasdaq was up 10 points at 3,670. On the NYSE, advancers slightly outpaced decliners, but on the Nasdaq, advancers were ahead by 1.3-to-1.

 Nasdaq Chart
Click to Enlarge

Chart Key

The small- and mid-cap stocks have been leading a lethargic move higher. Despite marginal advances, the Nasdaq received a MACD sell signal Monday. 

Support is initially at the index’s 20-day moving average at 3,630, and then there is a band of support at 3,575 to 3,630. Major support is at its 50-day moving average at 3,520 and the May closing high at 3,523.

RUT Chart
Click to Enlarge

The Russell 2000 small-cap index closed above its 20-day moving average Monday, but is still under pressure from a weak sell signal from MACD. MACD is turning up and could cause an attack on the high at 1,063. Support is first at 1,042, then the 50-day moving average at 1,014, and finally at 1,000.

Conclusion: With over 90% of the S&P stocks reporting, the flow of news moves back to the Fed and comments from its regional presidents. With that in mind, I suggest a cautious approach. But any correction should be used as a buying opportunity, since recent comments from the large institutional houses indicate that they are ready to pounce on weakness.

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,

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