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Small and Mid Caps Break Support

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The major indices ended mixed on Thursday. Caution seemed to dominate the market ahead of today's monthly employment numbers and amid a weak earnings season.

According to FactSet, Q1 profits for S&P companies are expected to fall for the fourth consecutive quarter, this time down 7.4%.

Notable decliners on Thursday included L Brands Inc ( LB ), the parent company of Victoria's Secret, which fell 12% after missing sales expectations, and Tesla Motors Inc ( TSLA ), which dropped 5% after reporting Q1 losses nearly doubled.

Energy stocks rose 0.8% on a 1.2% jump in oil prices to $44.32 a barrel. The gains were due to unrest in Libya and a wildfire in a major oil-producing region of Canada.

Gold lost 0.2% at $1,272.30 an ounce. The yield on the 10-year Treasury note fell to 1.76% from 1.79% on Wednesday. And the dollar advanced against the euro and yen.

At Thursday's close, the Dow Jones Industrial Average gained 9 points at 17,661, the S&P 500 fell fractionally to 2,051, the Nasdaq lost 9 points at 4,717, and the Russell 2000 was off 5 points at 1,108.

The NYSE Composite's primary market traded more than 949 million shares with total volume of over 4 billion. The Nasdaq crossed 1.9 billion shares. On the Big Board, decliners outpaced advancers by 1.1-to-1, and on the Nasdaq, decliners led by 1.7-to-1.

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Small-cap stocks, as represented by the iShares Russell 2000 Index (ETF) ( IWM ), have broken initial support at the 200-day moving average and a short-term trendline (red dotted line) at $112. An increase in negative volume and a short-term sell signal from the internal MACD indicator accompanied the breaks. The next support is at the 50-day moving average at $109.53.

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Mid-cap stocks, as illustrated by the SPDR S&P MidCap 400 ETF ( MDY ), have also broken initial support at $265 and a near-term support line (red dotted line). However, the break is not as serious as the one we saw in IWM since the 200-day moving average has not been violated.

The next support is at $259.86, the 50-day moving average. Downside volume is lower than average, and that is also constructive.

Conclusion

Small caps, dominated by technology stocks, have a more serious problem than the mid caps. However, it is clearly time to take profits and initiate protective strategies.

Aggressive traders should consider shorting or buying put options on high-P/E technology stocks. More conservative investors may still find bargains in the higher-yielding defensive sectors like utilities and my Trade of the Day .

Today's Trading Landscape

To see a list of the companies reporting earnings today, click here .

For a list of this week's economic reports due out, click here .

The post Small and Mid Caps Break Support appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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