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Small Caps and Mid-Caps Lead the Charge

David Becker
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Small Caps and Mid-Caps Lead the Charge

The S&P MidCap 400 (MDY) and S&P SmallCap iShares (IJR) were lagging the S&P 500 SPDR and Nasdaq 100 ETF in late May, but started playing catch up in June and hit new highs Tuesday. This should not come as a surprise because the long-term, medium-term and short-term trends are up. In addition, the first trading day of the month has a strong bullish bias. The MDY breaking above its April highs in early June and hitting a new high in July. The ETF is up over 9% from its mid-May low, which makes this a pretty sharp advance for some seven weeks.

The breakout and new high are bullish for the MDY. Broken resistance turns first support in the 250-254 area. The April-May lows mark key support in the 240 area. The indicator window shows the S&P 400 Mid-Cap AD Line hitting a new high as well. The AD Line measures the degree of participation for a move. A new high in the AD Line suggest that upside participation is strong and this reinforces the new high in MDY.

Small-caps were the biggest laggards in April and May, but one small-cap index hit a new high Tuesday and this is positive for the group. The IJR is breaking above its March highs with a surge above 112 on Tuesday. The wedge breakout and rising 200-day moving average mark key support in the 106 area.

The Russell 2000 can be divided into two ETFs, the Russell 2000 Value iShares (IWN) and the Russell 2000 Growth iShares (IWO). The division is not perfect because the Russell 2000 Value iShares has around 1324 stocks and the Russell 2000 Growth iShares has around 676 stocks. This difference is probably because financial services is the largest sector in the Russell 2000 and most of these stocks fit the value group, which includes regional banks. The Russell 2000 Value iShares (IWN) is surging to a new high over the last two days. New highs are bullish because they indicate that buyers are willing to pay higher prices.

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