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Small and Mid Caps Breaking Out

Group rotation was one of the most prevalent features of July's advance

The Dow Jones Industrial Average posted a weekly loss of 0.8% due in part to disappointing earnings from Exxon Mobil Corporation (NYSE:XOM) and McDonald’s Corporation (NYSE:MCD). But July marked the sixth straight month of gains in the blue-chip index.

The S&P 500 closed off 0.1% for the week, but set a new all-time high on Friday.

The Nasdaq outpaced the senior indices for the week, gaining 1.2%, helped by positive earnings surprises from Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOGL), Amazon.com, Inc. (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB) and Celgene Corporation (NASDAQ:CELG).

Investors appeared less confident on Friday following news that U.S. GDP growth came in at a seasonally adjusted rate of 1.2% in Q2 versus a consensus estimate of 2.6%.

At Friday’s close, the Dow Jones Industrial Average fell 24 points to 18,432, the S&P 500 gained 4 points at 2,174, the Nasdaq advanced 7 points to 5,162, and the Russell 2000 was up 3 points at 1,220.

The NYSE Composite’s primary exchange traded 1.2 billion shares with total volume of 4 billion. The Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 1.7-to-1, while on the Nasdaq, they were breakeven. Block trades on the NYSE increased to 5,999 from 5,436 on Thursday.

S&P 500 Chart
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For the third straight month, our trusty 17-month moving average of the S&P 500 has held its buy signal. By following the buy/sell signals of this simple method of long-term investing, one reader claims to have more than tripled his returns than had he just held for the past two decades.

But this year has been very volatile, taking us out and back into stocks twice. This is something that, in my experience, has not happened before. We are currently long-term bullish.

IWM Chart
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MDY Chart
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The iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) and SPDR S&P MidCap 400 ETF (NYSEARCA:MDY) are both breaking out.

MDY hit a new high Friday following a very strong buy signal from my proprietary indicator, the Collins-Bollinger Reversal (CBR).

As for IWM, initial support is at the June high at $118.64. After absorbing some strong selling on Friday morning, the ETF bounced and set a new high at $121.76.


It appears that following a major run-up in big-cap, high dividend stocks, investors have turned to the higher dividend small- and mid-cap stocks. While IWM has some serious overhead (i.e., potential sellers) to contend with since its high was made in mid-2015, MDY is in the clear.

Expect new highs in the mid-cap stocks with mild resistance from the small caps. One of the most visual characteristics of a bull market is group rotation, and that has been the most prevalent feature of the July advance.

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, https://investorplace.com/2016/08/daily-market-outlook-small-mid-caps-breaking/.

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