Broad market breaks out, as Nasdaq continues to show relative strength

After a two-day shakeout below support of its 50-day moving average less than two weeks ago, the Nasdaq Composite ripped to new highs yesterday. Clearly, buying the dip is still in vogue, as every significant pullback to the 50-day MA this year has quickly led to new highs in the Nasdaq. As shown on the daily chart below, the Nasdaq has also advanced in 7 of the last 8 sessions:

The S&P 400 Midcap Index led the market higher yesterday, with a 0.9% gain to new highs. Much like the Nasdaq, there was a quick dip (“shakeout”) below the 50-day MA, followed by a sharp reversal new highs:

Joining in the rally fun yesterday was the benchmark S&P 500 Index, which also hit a new closing high:

Although the small-cap Russell 2000 has not yet moved to new highs, it has made an impressive recovery after a nasty shakeout below its 50-day MA. Furthermore, with the price action well above the 50-day MA, and the 20-day EMA now crossing back above the 50-day MA, this index could easily move to new highs by the end of the week as well:

Over the past few weeks, we have stated several times that paying attention to the price action of leading stocks and industry sectors is best way to gauge the health of the market. So far, leading stocks continue either breaking out or forming constructive basing patterns. Due to institutional sector rotation, the Nasdaq also continues to show the most relative strength within the broad market, making it the place to be right now (and we are).