Securities Research Services

Monday, January 29, 2007

Small Caps Finding More Strength

The trading range we highlighted on Friday morning did indeed assert itself and a quick dip below $43.50 on the QQQQ found buyers. Once again, it does us no good to over think the daily moves in this market. It is range bound here and panicking on support tests and getting excited as prices move off support are both irrational emotions that represent a reaction to meaningless data.

Just keep the big picture in mind. The longer term bull trend is in tact and a breakout to the upside is almost a given in coming weeks. Those putting on shorts in hope that the market will break down here are probably due for some serious pain.

We did have a couple of interesting developments last week. While the blue chips and even big cap tech were under pressure late last week, the semiconductor sector, SMH, was actually trading in positive territory. The SMH is of course still range bound, but the fact that sellers are no where to be found, even on weak days, and that buyers continue to buy at support are both positives here.

The other interesting development is the fact that while the broad market indices such as the Dow, S&P 500 and NASDAQ, all have another week or two before they will run into their longer term up trends, the Russell 2000 small caps, represented below by the IWM, has been finding support at its long term uptrend and is projecting an upside breakout this week.

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