Economic news was either mixed or negative as Producer Prices fell more than expected, but jobless claims dropped more than expected. Initially the futures reacted positively to the lower jobless claims. Industrial production even rose a tenth of a percent better than expected, but it wasn’t until the Philly Fed reading that spooked the market. It wasn’t long before Wednesday’s low was taken out with ease. Volume rushed higher as the market was searching for a bid. By mid-morning the market slowly began to creep higher and finally close out in the upper range of the day. The S&P 500 was the only index to close positively. The eye sore on the day was the Russell 2000 significantly under-performing the market. Support on the day was a positive signal, but all in all just a day of rest.
It has been the big capitalization stocks helping this market move higher. We can clearly see this by the lagging relative strength line the Russell 2000 is currently sporting. Ideally, we’d like to see the small capitalization stocks lead the market higher rather than lag behind. There are plenty of reasons as to why small caps are under-performing, but they do not do us any good exploring them. The fact remains small caps are lagging and its not a great signal for this market. If the market moves higher and small caps rip that’ll be a clue we are seeing a more powerful move.
After-hours the market was dealt good news from three stocks. Goldman Sachs was able to settle with the SEC for ONLY $500,000,000. BP was able to cap the leaking well, it is about time! Finally, rumors Apple will not be recalling the iPhone 4 with the antenna issues. While the Apple news is more of a rumor the stock jumped in after-hours trading as traders anticipated the move. Tomorrow will be the big tell on how much strength is behind these names. Any big volume selling will not be a good sign in these names.
An interesting development was the rapid rebound in the amount of Bulls from the AAII sentiment. Bulls went from the low 20s to the high 30s almost to a 40 reading in under a week. It is no question bulls jumped back on the bandwagon in a heart beat! Does this signify a bottom is now in place, no it does as sentiment is a secondary indicator and should be used in conjunction with price and volume.
Volume has been lacking in a relative term. Volume doesn’t always have to be above the 50dma. It simply needs to be more than where the market stands in the current state. Many people look to the 50 day volume average as a guide to measure the true strength of this market. In February volume wasn’t tremendous, but a closer look you’ll see support days were volume came in and supported the market as well as rest days for the market. It is all relative Einstein!
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Disclosure: No Positions