Tuesday, August 30, 2011

Daily Market Commentary: Small Caps Shine

In one of the best days for the indices there was a strong push by buyers to snap up more speculative Small Cap and Tech stocks. All lead indices (S&P, Nasdaq and Russell 2000) left double-bottoms following neckline breaks. Challenges for the next few days will be holding breakouts and attracting money in from the sidelines. If there was a disappointment it was the lack of volume- although light upside volume from deep oversold conditions may actually be bullish (reflecting a skepticism on the merits of the advance). 

The S&P was one of the first indices to generate a MACD trigger 'buy' with today seeing a 'buy' in on-balance-volume too. There was a relative strength shift away from Large Caps to Small Cap stocks. Next upside resistance is converged 1,260 and 50-day MA. Support can be found at today's double bottom neckline and the 20-day MA.

S&P 500 Large Cap Index ($SPX):

via StockCharts.com

The Nasdaq gapped past its 20-day MA and finished just above its neckline. There was also a relative shift from Large Caps to Tech Stocks. If today's gap is a valid breakout then the gap cannot close. Aiding the bullish cause is the island reversal also left by the gap.

($COMPQ)
via StockCharts.com

But best gainer on the day belonged to the Russell 2000. Not only has relative strength shifted sharply towards Small Caps and Tech (Small Caps are attracting most of the buying), but it has also done enough to generate a double bottom after weeks of lackluster action. Resistance at 773 and 50-day MA.

Russell 2000 Small Cap Index ($RUT)
via StockCharts.com

Tomorrows action will focus on holding these new double bottoms, although 20-day MAs look a more important short term support level. It's getting tough for bears but bulls have substantial overhead supply to overcome. Particularly when June lows are tested. 

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Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com. I offer a range of stock trading strategies for global markets which can be Previewed for Free with delayed trade signals. You can also view the top-10 best trading strategies for the US, UK, Europe and Rest-of-the-World in the Zignals Trading Strategy Leaderboard. The Leaderboard also supports advanced search capability so you can tailor your strategies to suit your individual requirements.

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