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Market wants to bid

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Yesterday I had a wonderful lunch at Subway with my esteemed colleague and fellow trader Eric Utley. One topic was that we both had the "gut feeling" based on various observations that the market just seemed to want to put in a bid on stocks.

Yes, technology stocks have seen some short-term downside after some less than spectacular earnings, but the broader market averages have really held tough.

Last night's after-hours action didn't look good and I was a bit surprised when I woke up this morning and saw S&P futures actually trading higher. Even Microsoft (MSFT) $57.65 +2.3% had reversed late night trading levels as low as $52.50 to bid higher. (Observation is that traders in after hours have been getting crushed as stocks have traded very different from after hours trading)

The Russell 2000 Index (RUT.X) 518.51 +0.04% has been matched the Dow Industrials step for step so far this year for gains and hints that its not just the "big guys" that should be getting all the headlines. Right now, only the Dow Industrials and the Russell 2000 trade above their longer-term 200-day moving averages and exhibit some longer-term strength.

Russell 2000 Index Chart - Weekly Interval

The big caps are getting all the headlines and the topic of after-hours news, but the Russell 2000 (RUT.X) hints that some of the smaller caps are perhaps dodging the critic's bullets and attracting cash. Many of the stocks that comprise the Russell 2000 are more volatile and should have traders establishing smaller positions to begin with, then add to the positions on bullishness or pullbacks to support.

It should be encouraging for bulls to see a broader market average like the Russell 2000 Index (RUT.X) making some noise and trying to break above an 18-month level of resistance. Should technology stock experience their normal summer doldrums, it may be the smaller caps that provide bulls some gains in the coming quarter.

Jeff Bailey
Senior Market Technician
Option Investor

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