Since the follow-through day on October 2, the major indices have produced solid gains. However, the gains on the S&P 500 and Nasdaq have not been achieved through a steady climb due to pullbacks that occurred the week of November 3. While the pullbacks may have seemed harsh at the time (3.63% on the S&P 500 and 4.26% on the Nasdaq), the indices simply tested their 10-week moving averages and a prior area of resistance, which has now become support.


Although the performance in the indices has been quite impressive, taking a closer look at market breadth should help us gain further insight. Market breadth, or the number of stocks advancing relative to those declining, has been poor. Much of the leadership has been consolidated to mega cap growth names thus far. Evidence of this lies in the chart of the Nasdaq 100 (0NDQ). The index is at new highs while the Russell 2000 (0RUS) remains well off highs. This week has been different as the small cap index is handily outperforming the other indices.


We continue to track the different indices  to see if leadership can broaden out. We are also paying attention to the beaten up Biotech industry group to see if it can continue to gain its footing. The group has led the multiyear rally on the way up but has put pressure on the overall market the last few months. If it can continue to stabilize, it can be a positive for the market. For now, the line of least resistance remains up.



Best Returns,


Andrew Rocco,

The MarketSmith Team