The market capped off another solid week, with an impressive advance Friday as weak jobs data temporarily alleviated fears that interest rates will rise rapidly.  On the surface, it looks like the market will shoot to the moon.  But the bulls better keep the champagne on ice for now.  While the S&P500 and DOW have cleared resistance of their 50 day moving averages, the Nasdaq continues to lag.  In addition, buy volume remains tepid.. at least for larger cap names.  Over the last several days there has been a clear divergence in buy interest between small caps and large caps.  Wasn’t this the year that large caps were supposed to lead?  So much for the opinions of highly paid market pundits.. they’ve been predicting the outperformance of large caps for quite some time.  The strength in small caps has been impressive, but buy volume will have to pick up in the major indices in order to declare an all out buy signal.  While it’s OK to initiate long positions at this time, do so with some caution.  Looking ahead to next week, the earnings report from Cisco on Tuesday will provide important insight into the strength of the tech sector and should be a catalyst for market movement. 

Best Strategy: consider being 50% long at this point and adding additional long positions if the Nasdaq confirms a buy signal (by clearing resistance of the 50 day moving average with heavy volume – see chart below)

Here’s a look at the charts of the major indices.. notice the increase in buy volume as you go from the Dow (big, blue chips) to the S&P600 (small caps).

Semis: Is Fourth Time a Charm?

The chart above is of the Semiconductors Holders Trust (SMH) which I prefer to the SOX index because it provides volume levels.  Notice the dramatic shift to buyers over the past 10 trading days, evidenced by the spike in buy volume and the decrease in sell volume.  On Friday, a spike above resistance of the 50 day moving average provided further confirmation of strength.  But the key will be the all important resistance level of the 200 day moving average, which it has failed to move above on 3 previous occasions.  Keep an eye on the semis this week.. a decisive move above that resistance level could provide a real boost for the Nasdaq and the tech sector.  Should that occur, keep an eye on Tessera Technologies (TSRA) which is currently the highest rated semiconductor stock in the Breakout Tracker (with a score of 55/60).  It looks poised to break out from recent consolidation.

Breakout Tracker Highlights

It was an outstanding week for breakouts last week both in terms of the number of breakouts (25) and the success of those breakouts (not one ended the week with a loss!)

• The highest ranked breakout for the week (with a score of 53/60) was Cal Dive International (CDIS), which you may remember was highlighted in the oil sector report in last weeks Market Report (seen at SelfInvestors.com).  It ended the week with a 4% gain.
• Top gainers include CTI Molecular Imaging (CTMI) – up 14% and Terra Nitrogen (TNH) up 10%.

Note: For more information on the ranking system used by SelfInvestors.com and the proprietary database of CANSLIM style stocks, please see this page: Breakout Tracker