Thursday, October 27, 2011

Stocks Explode Higher As Small Caps Lead The Way

Stocks rallied strongly today with every major index sharply higher. Over the past 2 weeks the Russell2000 (small caps) have been leading the stock market higher as can been seen in the rising relative strength line in the lower panel.

Stocks usually put in a significant low around October and rally into the end of the year. This is a strong seasonal tendency that happens more often than not. I personally did not catch this move at all even though I was anticipating a low due around October. . I've been long several times which was profitable but I also shorted at resistance whch turned out to be a disater.

As you can see in the above chart, the small caps are now testing major overhead resistance. The NASDAQ, Dow and S&P have broken above most of their resistance levels. It will be interesting to see how the small caps handle this major resistance zone.

Overall I am looking for a retracement to buy. I'd like to see a one third pullback but for now I'll just take one day at a time and see how things unfold.

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