NASDAQ & Small Caps Hold the Answer

A new week of trading and a new week of opportunities. Investors ended the week with a lethargic response to the jobs report on Friday. The data was not enough to present a catalyst for investors to push the major indexes through resistance points and beyond. It may have produced more questions than it answered concerning the growth in jobs and the economy. That said, we have to look towards the growth sectors for answers going forward.

While the overall response of the investor wasn’t strong the move in the S&P 600 Small Cap index was positive on Friday. The chart below of the index clearly shows a gain of 1.3% to lead the market on the day. Leadership from the small cap stocks would be a big plus if the market is going to produce another leg to the upside off the October and December lows to keep the uptrend alive. The test lower off the February highs found support at the trendline and bounced last week. The close on Friday was back above the previous bottom of the trading range putting the sector back in the previous range. If the momentum follows through, the next resistance is at the 464 high for the index. That is where the test will come for the trend and leadership of the sector. If the momentum and trend can continue the momentum it will be part of the answer for the broad market to continue the uptrend.

Another part of the answer to the trend continuation is the NASDAQ index. The broad index has been the clear leader versus the Dow and the S&P 500 indexes. The acceleration in the technology, semiconductors and Apple have been the reason for the leadership and all three have tested the move higher over the last two weeks. The NASDAQ is now back near the high and resistance of the 3000 mark once again after a test near the 2900 mark. The renewed leadership of the index will be key to the upside continuation of the broad market

Breaking it down the semiconductors have bounced nicely off the test lower and are positioned to continue higher, providing a renewed spark to the broader technology sector. Watch for the SOX index to clear the 424 mark and test the highs near 436. Software has been another catalyst for the technology sector as well and the S&P Software index has already bounced back to the February high and poised to break higher. Look for both semiconductors and software to provide the push to the technology sector, which in turn will be the needed catalyst to for the NASDAQ to lead the indexes higher in the current uptrend.

Apple has been a key component due to the weighting in the index as well as its impact on investor psychology. Following a test of support at $516 the stock has bounced back to the previous high near $546. A break higher will be a positive influence on the NASDAQ and provide the additional catalyst needed for the broad market. There are plenty of believers in Apple’s abilities to move higher, but there are also those who think the valuations are too high. Watch the direction to have an influence overall.

There is plenty of economic data on tap this week as well which will have an influence on investor sentiment. The retail sales data for February, the Federal Reserve FOMC meeting this week, Empire Manufacturing and the Philly Fed are all reporting. The market needs momentum and that will come from conviction or belief the markets are in a position to move higher. Watch the economic data points to have an influence on the overall sentiment. But, the answer will lie in the Small Cap and NASDAQ index pushing higher to lead the broad markets overall.