Monday, July 26, 2010

Daily Market Commentary: Small Caps Take Charge

The third day of big gains swung the market sharply in favour of small caps over tech and large caps. Index relative strength has moved from the bearishness of early summer to the bullishness of today - now it's up to buyers to press their advantage.

For the Russell 2000, Friday's trading saw the 50-day and 200-day MAs breached while Monday saw the index finish just below a thinly defined (and therefore not potentially very strong) resistance area. Technicals are net bullish which turns future retracements to key moving averages - 20-day MA in particular - into buying opportunities.

($RUT)

via StockCharts.com

The S&P finished just above its 200-day MA while volume was a little light, although not unusual for this time of year. The shift in relative strength from Large to Small Caps is clear to see.

($SPX)

via StockCharts.com

Tech went a little further than the S&P having inched above its 200-day MA on Friday and added another percentage point today. June reaction high is its next target.

($COMPQ)

via StockCharts.com

But there was some interest in the Dow as it closed above its June highs - a good omen for other indices?

($INDU)

via StockCharts.com

The Nasdaq 100 also broke through channel resistance

($NDX)

via StockCharts.com

While it may be a little late to chase the rally after three good days, these past days have helped shore up the past few months trading as a market bottom. Just watch those 20-day, 50-day and 200-day MAs as support on the next downleg.

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