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Small Caps Soar as the Market Closes in the Green in Lighter Trade

|Includes:DIA, EDZ, QQQ, SPY, TECL, Direxion Technology Bear 3x Shares ETF (TECS)

Early morning trading received a boost by the recovery in the European markets. European markets were cheering news out of Italy on their ability to add more to their austerity package. For now, it was seen as a positive step in the right direction. From the get-go the NYSE volume run rate lagged severely behind yesterday’s pace indicating institutions weren’t actively involved scooping up shares in the open market. The NASDAQ jumped between running higher then lower, but at the end of the day (preliminary) volume came in lower. Big price gains are usually a factor of bear market rebounds and not those of bull markets. At the close the NASDAQ went out on the highs of the session and small caps leading. However, underneath the market it appears to be trouble.

Going long the market in big up-trends is MUCH more fun than having sideways markets. Today, we have a market moving higher on light volume. Not too mention the leadership today was from the BEAT UP industries in the market. Banks were leading the way today and normally in a new bull market they should lead. However, given the recent sell off they are merely reacting to oversold conditions. The leading stocks did not fare as well as I would have expected. Most of them could not outperform the NASDAQ. A sign of trouble is when leading stocks fail to outperform when the market moves higher.

In the short-term, believe it or not the market has moved back into overbought territory. This does not mean we can’t move higher, it means the upside is very limited. It is limited because we have a lack of leadership in the market. Until leadership can work itself out any rally will be sold into over the long haul. Let’s not forget, come this fall we are getting the super duper committee to tackle spending issues in the United States. There are macro headwinds that still remain, but at our level market leadership remains weak and there is VERY little accumulation in the indexes.

Not all is lost, the dust will settle once again. We’ll find ourselves with a great opportunity at our next new uptrend. We have a bright future, get a plan and execute. Remember, cut those losses.