Small- and Mid-Cap Stocks Outshine the Dow

by Sam Collins | November 22, 2013 2:51 am

On Thursday, the Dow Jones Industrial Average closed over 16,000 for the first time, spurred on by better-than-expected jobless claims and the move toward a new Federal Reserve chair.

Even though the Dow industrials made the headlines by breaking a big round number, it was the Nasdaq that had the best percentage improvement, up 1.22%. That index is poised to attack the round number of 4,000 for the first time in over 10 years.

The Labor Department reported that 323,000 new jobless claims were filed last week, which was below the expected number of 335,000. The producer price index (PPI) matched expectations, declining 0.2% for October.

At Thursday’s close, the Dow rose 109 points to a new record closing high at 16,010, the S&P 500 gained 14 points at 1,796, and the Nasdaq was up 48 points to 3,969. The NYSE primary market traded 622 million shares with total volume of just over 3 billion shares. The Nasdaq’s total volume was 1.7 billion shares. On the Big Board, advancers outpaced decliners by 2-to-1, and on the Nasdaq, advancers were ahead by 1.2-to-1.

Dow Chart
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Chart Key[1]

The Dow hit a new closing high while maintaining a bullish stance on its MACD indicator. The close, which was very near the high of the day, could indicate a strong opening this morning.

RUT Chart
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The Russell 2000 also closed very near its high of the day following a reversal from its 20-day moving average (green line). At under 60, its Relative Strength Index (RSI) is modestly valued, telling us that there is still some upside remaining in the current trend.

Conclusion: While the Dow industrials got all of the headline attention, it was the mid-cap and small-cap stocks that had the higher percentage move. The Russell 2000 rose 1.8% and the Nasdaq gained 1.22%, while the Dow rose 0.69%.

Short interest is high and there is still a lot of cash on the sidelines. And, according to The Wall Street Journal, public money is beginning to flow into the market. If that is true, this year could end with a solid gain.

Our strategy, therefore, should be to hold our winners and protect them with trailing stop-loss orders. Overpriced favorites in the tech sector that correct by more than 5% could be considered for a trade. But sector rotation will likely jump on groups that have yet to fully participate in this year’s success — like cloud computing stocks, which I will review next week.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[2].

For a list of this week’s economic reports due out, click here[3].

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