The senior indices bounced today and sentiment improved as interest rate worries faded. However, what was most significant about the market action today was the continued outperformance by small caps. While the DJIA and the S&P 500 are still well below their January highs, the Russell 2000 ETF (IWM) hit a new all-time high today.
Breadth has been running quite strong for a while and this is due to small caps. Over 60% of stocks are trading over their 40-day simple moving average of price. At the top in January that number hit 72%. The 'average' stock is acting quite well.
The senior indices have been covering up this strong underlying action. It has been a market that has favored stock picking of smaller and more speculative names. The senior indices do not suggest that this is a strong bull market but the price action in individual stocks does.
I've been writing about quite a few biotechnology names lately as they are a group that tends to do well when speculation is strong. The group performed well again today as big funds released lists of their first quarter holdings with Form 13F. This caused some good movement in a number of names like Iovance (IOVA) and Rocket (RCKT) which I've mentioned recently.
What will be interesting in the days ahead is how this performance gap between small caps and the senior indices will close. The small caps can continue to outperform but at some point either big caps are going to start acting better and catch up or small caps are going to correct. I suspect it is small cap selling that will be the way this disparity is corrected.
For now it's a market that favors small cap stock picking. Enjoy it while it lasts.
Have a good evening. I'll see you tomorrow.