Small Caps Lead the Market to Positive Day

The Russell 2000 Small Cap index must have heard all the analyst talk relative to the selling in the sector. The move of 1.2% on the upside to start the week show the interest in the sector overall. After testing support at 1087 on Friday the index followed through today with a bounce back to 1107. The uptrend remains in place and the

The economic data continued to show hope with the factory orders up 1.7% in September. The new orders from Boeing were a big part of the improvement. Ex-transportation orders were up 0.2% and in line with expectations. Tomorrow we get the ISM Services data and it we closely watched as well, and the jobs report on Friday will carry some weight as well this week.

The calls continue for the market to correct or sell from the current levels. I am not in the habit of speculating, but this argument has been being waged for awhile. But, it is the end of the year and time for some holiday cheer and the infamous Santa rally… right? I am one of the more cautious investors currently, but the buyers continue to step into the markets with the belief the worst of the risk is dissipating. Even if the Fed does cut stimulus in December the upside opportunities are being discussed by most bullish analyst. The bears are talking bubbles and crashes with consistency. Whose right? Only time will tell, but following the trends and letting the run as long as possible is the best course of action currently.

Monday put the sellers back in play on the upside with IWM, XLE and IYZ gaining more than 1% and reestablishing the move on the upside. The NASDAQ (up 0.3%), Dow (up 0.1%) and S&P 500 (up 0.3%) lagged behind the leaders, but they did manage to post positive numbers overall. Bonds were flat, interest sensitive sectors were up slightly and commodities held steady. All validated the fear factor relative to stimulus cuts moving up in timeline, were subsiding and some normality returning to the outlook. We still have to be patient, track the entry points and manage the risk accordingly.

State of the Market:

The S&P 500 index gained 6 points to close at 1767 and holding above the 10 DMA. Our near term target remains at 1800 on the index and support is 1730 and 1690. The FOMC worries too the day off, but the outcome is still in question short term. The trend of the index relative to direction has been positive enough to keep the index in an uptrend with some sideways consolidation. The downside risk remains a possibility near term and if investors turn and run it could get ugly quickly. Need to see further follow through on the upside if the uptrend is to remain.

The NASDAQ remains in a sideways trek as it consolidates or digests to prepare for a further move upside. The index closed at 3935 after testing support at 3908 last week. The rounding top on the index is still playing out short term and we will have to maintain a reasonable stop and keep moving forward.

The Dow made a move back to the previous highs at 15,700 last week and stalled as a result of the FOMC meeting. The index closed down 20 points today at 15,636. The double bottom pattern setup for the index is still a possibility going forward. A break higher would need some type of catalyst short term to make the push. Watch to see how this plays out going forward.

The Small Cap stocks showed the buyers are still present as the index gained 1.2% to regain some of the previous upside momentum. Watching for support around the 1085 level to hold as it did earlier this week. We closed at 1108 on the day? We are not out of the woods yet, but the positive move Monday was at least a beginning to resume the upside.

Chart to Watch: 

The chart today is S&P Metals & Mining ETF (XME). The move above the $40 mark today was a positive for a continuation of the uptrend off the lows in June. This takes out the resistance and the above average volume was a positive short term. WLT and ANR were both up more than 9% to lead the sector as both charts reflect a breakout and follow through from consolidation as well. This is a sector worth our time of looking for and defining the leadership as well as owning the sector overall.


Other Moves of Interest:

Solar (TAN) Tested the $35 support level and bounced on Friday with strong results from earnings. The follow through today was an 8% gain and the numbers in the sector continue to impress. Closed near the current high and a move beyond this level may accelerate the uptrend again.

Apple (AAPL) is still consolidating in a pennant pattern the last two weeks. Look for a move on the close above $532 to confirm a break or continuation of the uptrend. Despite all the noise around the company in the media the outlook is still positive going forward.

3D Systems (DDD) – the stock tested lower in early October, but has been a solid run higher the lats three weeks. This is a disruptive technology that is gaining acceptance and offers a bright future relative to market share and earnings. New high posted last week with a upside move of 4.7% today. This remain a stock to watch going forward. SSYS is in the same category of 3D printing and is attempting to set a new high as well.

What to Watch Tomorrow:
Can this market continue to find buyers to move higher? The economic data and earnings remain the catalyst for now. I am watching to see if the FOMC worries return relative to the stimulus cuts and the time table. Keep your stops in place and ride the tide as long as it is rising.