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Guess Who Is Leading the Market Again?

The yeoman's work is being done at the small- and mid-cap level


Stocks jumped from the gate on Monday, sending the S&P 500 to a new intraday high. But late-day profit-taking sliced into the gains, and the index closed higher than on Friday, but shy of a new closing record. The last three weeks of gains have wiped out all of the losses of early February and put the major indices in a position to move forward.

The strength of buying was in direct contrast to negative market performance from China, which could have been a downer for U.S. stocks. And Fed Chair Janet Yellen’s testimony before Congress on Thursday presents uncertainties. Economic data due this week includes consumer confidence, new home sales, durable goods orders, jobless claims and Q4 economic growth.

At the close, the Dow Jones Industrial Average gained 104 points at 16,207, the S&P 500 rose 11 points to 1,848, and the Nasdaq was up 30 points at 4,293. The NYSE traded total volume of 4 billion shares, and the Nasdaq crossed 2.2 billion. Advancers outpaced decliners on both exchanges by about 1.7-to-1.

Nasdaq Chart
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Chart Key

Monday’s gain confirmed a break for the Nasdaq from its range-bound bullish “V” that has been hanging over the market since early February. The intraday high and close were the best for the mid-cap index since April 2000.

Support for possible profit-taking begins at 4,250 and should contain any initial selling. It is difficult to set a trading target since little validity should be assigned to purchases and sales that occurred almost 12 years ago. But a rough target can be calculated by subtracting the approximate bottom of the V at about 4,000 from the resistance at 4,250 (250 points), and adding that to the breakout point at 4,250, which gives us 4,500.

RUT Chart
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The Russell 2000 small-cap index is just 2 points from a new intraday and all-time high. MACD is bullish, and momentum (not shown) is “through the roof,” indicating that it is only a matter of time before the index blows through the top of the chart.

Conclusion: Although the S&P 500 set a new intraday high Monday, the yeoman’s work is being done at the mid- and small-cap level. The resumption of this trend is reminiscent of last year’s run from Jan. 1 to April 1, which was also led by the small and mid caps.

As we finish February, which according to the Stock Trader’s Almanac, is traditionally the weak link in the “best of six months,” we look forward to March. In recent years, March has had some wild swings but scores an average gain of 1.4% and comes in third best over a 30-year period of time (up 20, down 10).

It is also the third best Nasdaq month during midterm election years with an average gain of 2.1% (up 7, down 3). It usually has strength up to mid-month and weakness late in the month. Bring it on.

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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