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Can Large Cap Stocks Lead the Way Higher?

David Becker
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Can Large Cap Stocks Lead the Way Higher?

The Dow and S&P500 Index have moved up to the top end of the current range and have paused ahead of the US employment report. Traders are awaiting the news from the BLS with the median estimate for jobs to increase by 210K. While it is possible to come out of the fed meetings with a quiet market result, Thursday was very quiet on the equity markets. This could have been due to many nations having a holiday Thursday, or investors still analyzing their positions ahead of the payroll report.

While the US markets are attempting to break out, European markets remain strong which is helping buoy the US. The Top 100 European Stock Index represents an index of the top 100 European stocks. It has pushed above previous highs going back to January. While the candles breaking out are not huge, this index has closed 2 days in a row well above the previous closing highs. Many of the European exchanges were closed Thursday.

The S&P 500 index has climbed relative to the Russell 2000, which shows that the leadership is the large cap stocks. The ratio between the two indices has moved above trend line resistance, and is poised to test the 2012 highs near 1.78. Momentum on the spread is strong with the MACD printing in positive territory after generating a buy signal in April. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The 50-day moving average crossed above the 200-day moving average, which shows that a long term trend is in place. Generally, small cap stocks lead bull market trends. It seems hard to believe during this current move that large caps will be able to lead the way higher.

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