The large indexes recorded gains yesterday in an attempt to extend the upswing that began on May 3rd. For most of the trading day, stocks oscillated between positive and negative territory, but more than anything, succeeded in trending upwards, closing close to the upper edge of their intraday range. Yesterday’s movement came on the shoulders of Monday’s relatively strong price correction.
The sentiment yesterday was positive and had improved thanks to the tapering in concern about interest rate levels. That notwithstanding, what was perhaps most significant in the market movement yesterday was the continuity seen in the outperformance of the small-caps. If the Dow Jones and the S&P 500 are still trading significantly beneath the highs they recorded at the end of January, the Russell 2000 (IWM) set a new historic high yesterday.
We’ve seen nice market breadth for quite some time and that’s due to the activity in the movement of the small-caps. Over 60% of stocks are traded above their 40-period EMAs. At the height of January, the number stood at 72%. That means that the average, run-of-the-mill stock is performing quite nicely.
The performance of the large indexes is concealing the undercurrent of strength. The market has now effectually given precedence to small stocks and more speculative companies. The large indexes have not succeeded in reflecting the fact that we’re talking about a strong bull market, but it’s precisely the price movement in individual stocks that has succeeded.
One interesting facet of the movement is the strong performance of late in a number of biotech sector stocks. The biotech sector tends to perform well when people have a strong tendency to speculation. This sector’s performance was impressive again yesterday, while large funds released their SEC Form 13F detailing their Q1 holdings.
That, in of itself, led to strong momentum during trading in names like IOVA and RCKT. Other stocks that put on a nice show were: ENPH, CCXI, AGLE. This still isn’t a market presenting a lot of opportunities for large and aggressive positions, but speculation in small-cap stocks is working. Like always, timing is everything.
What’s expected to be interesting over the next few days is whether the gap in the performance of small-caps and large indexes will be bridged. Small-cap stocks can continue to outperform but at some point, either big-cap stocks will perform better or play catch-up, or small-caps will correct.
Strong price movement also reflected itself in some big-cap stock – but primarily in response to strong earnings reports. Take for example the department store chain, Macy’s (M), which soared 10.8% yesterday. M is nearing its trading highs after reporting better than expected Q1 results, and raising its full-year guidance. At the same time, interest in buying big companies was streamlined due to geopolitical uncertainty which has sidelined some traders, Kim Jong-un threatening to cancel his historic meeting with President Trump.
As of now, when all is said and done, the market’s graced the small-caps. As long as that continues, enjoy the ride!
Thursday: Trading on Thursday will be affected by the response to the following: initial unemployment claims, which will be released at 8:30 N.Y. time, and the Leading Indicators Index and the Philadelphia manufacturing activity report at 10:00. Additionally, earnings news will command attention, a focal point being the network giant, Cisco (CSCO), which reported yesterday after the closing bell, falling in response by 3.57%. Other stocks that will command attention today come from the retail sector, first and foremost, the world’s #1 retail giant, Walmart (WMT), which will report before opening and which will unofficially, cap off the Q1 earnings season, which has steered trading over the last 6 weeks. Also today, be primed for the numbers of J.C. Penney (JCP). AMAT and JWN will be reporting after closing.
Have a great trading day!
Today’s Picks – Day Trading!