Dallas, TX
February 2, 2012, 08:00 EST		 Dr. Joe Duarte's Market I.Q.


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Intelligence, Market Timing, And Trading Strategy For Traders and Investors

Small And Midcap Stocks Flex Their Muscles
What's Hot Today:
U.S. stocks are gaining a higher risk profile.

Economic Calendar
  • Chain Store Sales

  • Challenger Job-Cut Report 7:30 AM ET

  • Jobless Claims 8:30 AM ET

  • Productivity and Costs 8:30 AM ET

  • EIA Natural Gas Report 10:30 AM ET

  • 3-Month Bill Announcement 11:00 AM ET

  • 6-Month Bill Announcement 11:00 AM ET

  • 52-Week Bill Announcement 11:00 AM ET

  • Fed Balance Sheet 4:30 PM ET

  • Money Supply 4:30 PM ET
News For Thought:

U.S. to leave Afghanistan. According to The Wall Street Journal: "The U.S. plans to shift the war strategy in Afghanistan from a combat to a train-and-assist mission in 2013, limiting the role of international forces ahead of the scheduled pullout at the end of 2014."

Bellwether shipping rates index collapses. According to Reuters: "The Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities, fell to a more than 25-year low on Wednesday as a slump in cargo business and a mounting glut of vessels battered sentiment." The report added: "The overall index fell 18 points or 2.65 percent to 662 points, falling below the 663 point low hit on Dec. 5, 2008 during the financial crisis and its lowest since 1986. "

Many are ignoring the potential significance of this. And frankly, we're not sure what to make of it. Yet, it seems that if shipping is the key to globalization, then we should consider this an important development.

Reuters noted: "The shipping sector in coming months is expected to face a supply glut and glum economic outlook, including concerns over Chinese demand for raw materials, which will pressure earnings. Weather and other disruptions in Australia and Brazil last month together with slower restocking due to an earlier Lunar New Year holiday in China this year have hit cargo activity in recent weeks."

Holdergate? We picked this up on our Twitter feed at 21:50 On Wednesday night. "A U.S. Justice Department source has told The Daily Caller that at least two DOJ prosecutors accepted cash bribes from allegedly corrupt finance executives who were indicted under court seal within the past 13 months, but never arrested or prosecuted. The sitting governor of the U.S. Virgin Islands, his attorney general and an unspecified number of Virgin Islands legislators also accepted bribes, the source said, adding that U.S. Attorney General Eric Holder is aware prosecutors and elected officials were bribed and otherwise compromised, but has not held anyone accountable."

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Small And Midcap Stocks Flex Their Muscles
Traders Seem Willing To Increase Their Risk Profile
Traders are increasingly convinced that this rally in the stock market has some legs. Of course, that could all change by Friday with the release of the jobs report. But until then, we could have more to the up side.



Chart Courtesy of StockCharts.com


Fairly good data from the private jobs sector and better than expected manufacturing news boosted stocks on Tuesday. But there was a clear distinction with regard to money flows. The Dow Jones Industrial Average (INDU) and the S & P 500 (SPX) could not hold on to their full gains by the close. That's a bit of a negative.



Chart Courtesy of StockCharts.com


In fact, the big money went into the Russell 2000 Index (RUT) of small stocks and the S & P Midcap Index (MID). That's a sign that investors are willing to start betting on growth, not just dividends and steady gains fueled by a global presence, such as what is usually the profit formula for large cap stocks.



Chart Courtesy of StockCharts.com


The fact that investors are moving money into growth stocks also suggests that they are willing to take more risk. That's a double edged sword. More risk means more room for disappointment, such as when a company misses its earnings expectations. Or when economic data, such as Friday's employment report disappoints. In other words, this market is getting a bit more dangerous. That's no reason to sell. But it is a sign that paying more attention to detail and your trading plan is the best strategy at the moment.



Chart Courtesy of StockCharts.com


Our favorite breadth indicator, the Nasdaq Advance Decline line (NAAD) recovered nicely on Wednesday, after Tuesday's dip. The new high means that the rally is picking up steam and that it has a chance of lasting a bit longer.



Chart Courtesy of StockCharts.com


The same thing can be said of the action in the Nasdaq Hi-Lo line (NAHL). This indicator suggests that up side momentum for stocks is intact. This also means that, for now, buying on the dips may be a good strategy.



Chart Courtesy of StockCharts.com


Conclusion

Wednesday was a good day for small and midcap stocks. It was also a day in which traders decided to take more risks. And more risk eventually turns into more people making bad decisions. For now, though, it looks as if it's still early, or not as late as it could be at some point in the future.

The really big day will be Friday. A good employment report could really put stocks into hyperdrive.

When you understand the big picture, the next step is how to survive and profit from what lies ahead. That's why we recommend: "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for All Seasons. Also Available As Kindle Books.

 

Market Moves - Stock Of The Day
Manpower Inc. (NYSE: MAN) Breaks Out
Shares of Manpower Inc. (NYSE: MAN) delivered a surprise earnings knockout on Wednesday.



Chart Courtesy of StockCharts.com


Manpower's break out may mean more for Europe, where it does 75% of its business than for the U.S. Yet, from our viewpoint, it's still a potentially bullish signal for Friday's jobs number.

Manpower made money in Europe. That means that if where the economy totally stinks people are getting work, in the U.S. where things aren't as bad, the odds of a big surprise are increasing. To be sure, no one really knows which way the employment report will break. Yet, the odds of a big positive, in our opinion are rising.

Manpower's management remained cautious in its conference call with analysts. But the market didn't budge. That means that traders are starting to factor in an improving jobs market in the U.S. We'll see on Friday.

For more details on how analyze intermarket relationships and how to use technical analysis in your daily portfolio managmement buy "Market Timing For Dummies" and "Trading Futures for Dummies." Visit our bookstore.

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