SMALL AND MIDCAPS ARE LEADING RALLY ATTEMPT -- S&P 500 BREAKS JANUARY DOWN TRENDLINE

S&P 500 IS BREAKING DOWN TRENDLINE... The market's attempt to stage an oversold rally is beginning to gain more traction. The S&P 500 Large Cap Index is breaking through its January down trendline which was one of the first tasks it had to accomplish to signal a more serious rally attempt. Its next hurdle is its 50-day average at 1188. The fact that its daily stochastic lines have turned up is a good sign. And the fact that the daily MACD lines are very close to turning positive. Technical odds for the rally to gain more ground are greatly increased by the relatively strong action in small and midsize stocks.

Chart 1

SMALL AND MID CAPS HAVE TURNED UP ... The next two charts show the S&P 500 Mid Cap and the S&P 600 Small Cap Indexes having already cleared their 50-day average and initial resistance formed in mid-January. Their daily MACD lines have also turned positive. The relative strength line in Chart 3 shows that small caps are outperforming large caps for the first time since the start of December. That's usually a good sign for the rest of the market -- especially the large caps. That's because large caps usually follow the lead of small caps.

Chart 2

Chart 3