Yesterday, I mentioned that the market breakout was suspect until the small caps joined the party. Today, the IWM out-performed SPY and QQQ, but fell short of its rally peak of $83.31. That intra-day peak came on February 17th, marked by the red arrow on the chart below.
However, the second panel on the chart is of closing prices. IWM’s high close was $82.95 on February 3rd, marked by the black arrow. And as you can see, IWM closed above that level by an eyelash today, and also on Tuesday.
So, what’s more significant? The intra-day high, or the closing high? Answer: the closing high, because fund managers look at daily charts of closing prices and don’t care about intra-day extremes.
Right now, fund managers are seeing a breakout on the IWM chart, and are thinking about coming in. If IWM can follow through in the next day or two, bears should probably throw in the towel.
Also, this morning, the IWM was lagging until the “oil to be released from SPR” rumor hit the news. Oil whooshed down initially, and the IWM rallied along with the transports. If small caps are sensitive to gasoline prices, it’s news to me, but that’s what it looks like. Has the Russell 2000 been sulking, along with the transports, because of gasoline prices?
The Dow Jones Transportation Average finished up 3.27% today. So, even though the White House denied the SPR rumor, the markets suspect that Obama sent a message to oil speculators. And that might mean that he is serous about not letting gasoline prices cost him the election.
In other words, there is a potential catalyst there that might cause the small caps and transports to join the breakout. The IYT came up short of its rally peak, so it’s in the same boat as the IWM: it also needs to deliver some follow-through on today’s action.