S&P 500 Itching To Break Out At 3950s

Indices are beginning to diverge. Last week, large- and small-caps posted new highs, but tech struggled to put its act together. This is taking place at a time when sentiment is no longer as effusive as several weeks ago. If bulls regroup and sentiment brightens up again, the divergence can continue – for now.

The S&P 500 (SPX) is itching to break out. Last week, the large cap index jumped 2.6 percent. In the prior two weeks, it finished right on a rising trend line from last March; an intraday breach was bought on both March 4 and 5 (Chart 1).

Through the low of 3723.34 on March 4, the S&P 500 shed 5.6 percent. Earlier on February 16, it peaked on 3950.43. From that low, it then quickly rallied 6.4 percent. What was lost in 13 sessions intraday was gained back in seven.

Last Thursday, the index tagged 3960.27 before pulling back slightly. Volume is progressively lower in the latest rally. That said, a decisive break of 3950s can act as a self-fulfilling prophecy, driving the S&P 500 (3943.34) toward the big round number 4000.

Immediately ahead, there is support at 3870s, followed by 3720s; the latter was aggressively defended in the latest selloff.

Small-caps went toe to toe with large-caps. In 17 sessions between the February 10th high of 2318.09 and the March 5th low of 2085.12, the Russell 2000 (IWM) dropped 10.1 percent – a correction territory. From that low through last Friday’s high of 2354.20, it then shot up 12.9 percent – in six sessions – to a new high.

Last week, the Russell 2000 (2352.79) jumped 7.3 percent, rallying back into an ascending channel from last October-November (Chart 2). If the index ends up testing the upper bound, as has happened several times the past four months, it is headed higher.

Investors continue to show love for small-caps. Rather strangely, they concurrently bid up the Dow Industrials (DIA), which posted a new record high earlier than both the Russell 2000 and the S&P 500.

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