A choppy, range-bound session last Friday caused stocks to close out the week
with little fanfare. Oscillating in a tight, sideways range throughout the
entire day, the major indices posted mixed results. Both the S&P 500 and Dow
Jones Industrial Average advanced 0.4%, as the Nasdaq Composite slipped 0.1%.
The small-cap Russell 2000 and S&P Midcap 400 indices also registered
matching declines of 0.1%. Each of the main stock market indexes settled near
the middle of its intraday range. For the week, results were also mixed. The
tech-heavy Nasdaq Composite climbed 1.6% and the benchmark S&P 500 gained
0.2%, but the blue-chip Dow Jones Industrial Average lost 0.5%.
Total volume in the NYSE rose 17% above the previous day's level, while
volume in the Nasdaq receded 5%. Although the S&P 500 advanced on higher
volume, much of the increased trading could have been attributed to last Friday
being monthly options expiration day. The indecisive, lackadaisical trading that
persisted throughout the day was also not indicative of institutional
accumulation. In the NYSE, advancing volume exceeded declining volume by a
margin of 3 to 2. The Nasdaq adv/dec volume ratio was roughly flat.
Since forming their intermediate-term bottoms one month ago, the major
indices have shown quite a bit of divergence. From their July 15 lows through
August 15, the S&P 500 and Dow Jones Industrial Average have risen 6.8% and
6.4% respectively. Gaining 6.3% since its intermediate-term bottom, the S&P
Midcap 400 has turned in a similar performance to the large-cap Dow. All three
indexes, which have not yet convincingly broken out above their 50-day moving
averages, have been the laggards of the bunch. Scoring a much stronger
performance has been the Nasdaq Composite, which has rallied 10.8% since its
mid-July low. The Nasdaq is also trading firmly above its 50-day moving average,
and even its 200-day moving average as well. But even better has been the
performance of small-cap stocks.
Last Friday, the Russell 2000 Index, a diverse index of small-cap equities,
became the first of the main stock market indexes to test resistance of its June
2008 high. This represented an impressive gain of 14.4% in just over a month, a
piece of which we profited from through a recent long position in Ultra Russell
2000 ProShares (UWM). Below is a daily chart of iShares Russell 2000 (IWM), a
common ETF proxy for the small-cap Russell 2000 index:
Although the Russell 2000 has clearly been showing the most relative strength
of the major indices, it may be difficult for the index to overcome major
resistance of its June 2008 high without first undergoing a decent correction.
