Small Caps Lead Markets Higher

Welcome to one of the slowest trading weeks of the year! This is a great time to play catch up… both in the market and on our rest! The markets inched higher with the S&P 500 index gaining 0.3%, but the Russell 2000 Small Cap index gained 1.2% to play catch up from lagging the last couple of weeks. The NASDAQ posted a gain of 0.9% as the semiconductors and biotech stocks lead the way. The Turkey Day rally is in place and all is well for now as volume will be light all week as it was today. The first chart below is the Russell 2000 index showing the move back near the resistance of the September and November high. A break through this level would be a positive for the index and the broader market outlook short term.

RUTX

The second chart below is that of the NASDAQ Composite index which confirms the move higher from Friday above the 4700 mark. The trend remains intact on the upside and the break higher from the ‘V’ bottom pattern is a positive as well. The biotech (IBB) is breaking through the upper resistance point as well and in position to lead the broad index. The SOX index cleared resistance at the previous highs last week and followed through today with another positive push higher. With the leadership from the NASDAQ and the Russell 2000 indexes we have money flowing back towards the growth stocks which have lagged to this point and may play catch up through the year end. Definitely worth our attention going forward.

Composite Index

 

The internet stocks have struggled to move higher as seen in the First Trust Internet ETF (FDN). There have been plenty of reasons relative to earnings, forecast for earnings going forward and investor worry about valuations. This has impacted the better performing stocks such at Twitter, Facebook and Yahoo of late. The talking heads have pronounced the sector dead and not worth attention near term. While it is easy to dismiss sectors that are struggling to advance a quick look at the chart below would not say the sector is dead consolidating maybe, but not dead. The Social Media (SOCL) sector has been the drag on the internet sector and where we have continue to dig to see exactly what the concerns and worries are that have pushed investor money to other sectors.

Chart

In this space there has been plenty written, blogged, tweeted, and shared on Facebook… about Facebook (FB). The stock has failed to make much progress of late and has established a sideways trend the last month. The long term trend is still to the upside albeit being tested currently. The outlook is optimistic fundamentally. The earnings were better than expected. The challenge is guidance on spending for 2015 is expected to increase. Since the company did not revise their earnings forecast it is assumed revenue will not climb proportionate to expenses rising. Therefore the stock must be in trouble. I will go out on a limb and say they are going to do well as long as they protect their billion person social communication network and keep it happily intact. Mr. Zuckerberg understands one thing very clearly… the power of that billion person platform! They are doing more to protect the network and empower the network going forward. None of that will keep the sellers at bay if they gain short term control in the direction of the stock. But, it will present another buying opportunity for investors who are willing to accept the short term volatility for the longer term benefit of owning the stock. We continue to track this as one of the long term opportunities and have made some adjustments to the position over the last two months. This sector is worth our attention as well as the stock. Social media is still a strong growth sector going forward and one to dig and look for the opportunities long term.

FB

Use the opportunity this week to do more research, clean up portfolios and be thankful for slower time to regroup! Take some time to relax and enjoy opportunity to share time with friends, family and even some people you like.