Signs of Rotation

The stories relating Monday’s stock market action will focus on the sell off that happened after an elated rise overnight that coincided with Larry Summers withdrawing his name from consideration as Federal Reserve Chairman. All markets did sell off, but if you look a little closer some were stronger than others. Below is a two day plot of the 5 minute price action in 5 major market indexes, the Dow Jones Industrials ($DJIA, $DIA), Dow Transports ($TRAN, $IYT), S&P 500 ($SPX, $SPY), Russell 2000 ($RUT, $IWM) and Nasdaq 100 ($NDX, $QQQ). All show the Summers bounce. But contrast the differences in the price action from there. The Nasdaq 100 at the bottom started heading lower immediately and by 1:30 was negative on the day. While the Dow Jones Industrials and Transports held pretty steady and finished

indexes

with good gains on the day. In fact the more the index was focused on large cap names the better it did Monday. This is particularly interesting for a couple of reasons. First, there has been much made of the Dow Generals not making new higher highs as the smaller cap indexes have. Monday was in a way some catch up for them. With the Nasdaq 100 and Russell 2000 leading the latest leg higher, perhaps this is the start of a rotation back towards the large cap names. Only time will tell, but it may pay to keep your mind open to the possibility.

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