Monday, August 02, 2010

Daily Market Commentary: Large Caps Lead

While relative strength holds in favour of small caps it was all large caps today. There were also 'Golden Crosses' between 20-d x 50-d MAs for nearly all key indices, reflecting the growing bullish momentum in the markets. The S&P cracked through June high resistance - albeit on light volume - to set a new closing (but not absolute) high for the rally off July lows.



While the Dow didn't post as great a gain as the S&P it did manage to work itself perfectly off former channel resistance-turned-support; managing a new closing and absolute high for the July rally and killing the April-July decline.



The Nasdaq and Nasdaq 100 also impressed although each remain contained by June reaction highs.




One index to disappoint was the Russell 2000; Monday's gain failed to crack resistance and unlike the other indices there was no 'Golden Cross' between 20-d and 50-d MAs. This index is riding past form in the leadership department which is not the best set up for bulls, but with the rally developing it might get dragged along with it.



More worryingly, the semiconductors are slipping fast. Despite the 'Golden Cross' between 20-d and 50-d MAs there was a MACD trigger 'sell' to add to the sell in the CCI and ADX. For the Nasdaq and Nasdaq 100 to follow Large Caps lead there will need to be more jazz from the SOX.



While large caps are doing all the pulling they won't be able to do all the work without the help of small caps and tech. If small caps and tech continue to lag they run the risk of creating 'bull traps' out of the large cap breakouts.

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