The S&P 600 Small Cap index finally broke above the 363 resistance mark on Monday. As the chart below reflects the move has taken some time to develop, but now the question begs… how high do we move from here? Or, is this a false break similar to the one posted on March 19th? Either way this is a move worthy of watching short term. The short term target on the move higher is 496 for the index. The small cap stocks led the way early off the October lows in 2011, but has been trading sideways since early February. Are they an indicator for the next leg higher in the broad markets? That is the move we are looking for short term. Monday gave several sectors a needed move higher which could extend the move higher for the broad markets.
Technology has been a solid leader and extended the move above resistance on Monday. The move on XLK pushed through the $30.10 mark and is in position to take the next leg higher. The key to the move higher for the sector will be the semiconductor stocks (SOXX) which made a solid move above resistance as well on Monday closing above $59.60. Networking (IGN) has been the laggard of the sector overall, but made a solid move above $30.65 with $31.75 the next resistance point. Cisco made a solid move to a new high to lead the sector. Both sectors could offer the needed catalyst on the upside. Watch for a follow through in the sub-sectors to carry the broader technology sector higher as well.
Healthcare jumped with the broad markets, but I believe they moved higher in anticipation of the Supreme Court making a ruling versus delaying a decision in relation to the Obama Healthcare Plan. Either way you have to like the moves higher in the sector. Medical devices, pharmaceuticals, providers and biotech all jumped higher on Monday. The sector recently broke from consolidation at $36.50 and has spent the last two weeks testing the move. The sector held support and and is now back above the previous high. The strong push to the upside will be important to watch as the Court decides on the outcome and the sectors ultimate direction. The providers (IHF) will have the biggest impact from a negative ruling.
Financials rallied back near the current high with the banks, regional banks and insurance stocks doing their part. The decline on Thursday caught most investors attention as the banks struggled with the economic data and outlook. However, they bounced on Friday and moved back to the high on Monday. The outlook is positive, but we have to be protective as the move higher is extended short term. Either be willing to accept volatility or take some short term profits as this plays out. The consistent move of late is coming from the broker/dealers. As the chart below shows, they were late to the game but they have provided a solid move higher in March. The ETF has low volume relative to buying the sector, but provides a great list to scan for the leaders in the sector. Financials remain a leader and key sector for the broad markets advance.
Precious metals moved on the Bernanke effect Monday. They have not been a leader for the markets overall and have been more of drag in fact. The chart of gold below shows the volatility and lack of direction overall. If anything the move may signal an upside trade, but even that is not clear. Why post this chart in the update? Simply because we know everyone is watching and waiting for gold to be a buy. The move on Monday was positive, but the short term downtrend remains in play and the bump came from comments from the Fed Chairman. Unless there are some actions to follow up the words, I am not looking for a big move in gold short term.
The markets were in need of a catalyst for the next leg higher in the broad markets. Did they get it from Bernanke? Will it last? Do the sectors above have the drive to take the markets higher? If so, for how long? The answer to all these questions and more will come in time. I am not a prophet, but the trends are in place to move higher and the catalyst on Monday was needed to extend the trend. The next couple of weeks will provide plenty of economic data to aid in the move higher or they will create doubt. The tie breaker will come with earnings as they begin in two weeks. Plenty to watch and ponder in the coming weeks, but the trend will the ultimate decision maker moving forward. Set your stops and manage your risk.