Small Cap Market Outlook

07/27/10 -

The Big Small-Cap View: 650 bullishly eclipsed but nearing key 670 resistance where recent rallies have failed.  670 represents the late May/early to mid June highs that will invite profit-taking if our view to sell the rally proves correct.  Remarks by Sens. Conrad, Nelson and Bayh opened new possibilities of extending the Bush tax cuts while reports that cap and tax would be tabled moderated the Obama administration’s anti-business tone.  Bernanke’s testimony in the end amounted to announcing more monetary helicopters were being launched now that Fin-Reg risk to the Fed’s independence was behind even as corporate earnings reported to date have proved strong.  Last week’s 6.6% strong R2000 gain occurred on below average volume and may owe more to short-covering than fresh risk-taking.

• Sector movement: Consumer Discretionary remains under relative distribution. Former leader Materials now also entered the gray neutral area.  Despite last place momentum, Energy remains within our grid’s green attractive area -- our grid favors adding Energy exposure along with Technology which continues to gain relative strength.  Industrials gained momentum as strong corporate earnings work to quell double-dip recession fears.  Healthcare remains in the red unattractive area with declining momentum.  Financials is poised to join Healthcare as clearly out of favor sectors. Utilities relative performance has surprisingly improved during the current rally.  Staples remains neutral.