Market observations for a Sunday morning (hats off to Decision Point for the Advance-Decline stats and to Barchart for the new high/low data):
* The NYSE Advance-Decline Line has been flat since mid-April and is below peaks achieved earlier in April and May, despite the rise to new price highs on Friday.
* The Advance-Decline line specific to the Dow Industrials has steadily moved to new highs through the rise; the AD Line for the S&P 500 large caps also touched a marginal new high on Friday.
* From mid-April to early May to this past Friday, the AD Line specific to the S&P 600 small cap stocks has traced out lower highs and lower lows. This pattern of lower AD highs and lower AD lows is especially noticeable in the advance-decline stats specific to the NASDAQ Composite stocks.
* The AD Line specific to the NASDAQ 100 stocks is also not confirming the Friday highs in the large caps, but is notably stronger than the AD Line for the full range of NASDAQ Composite stocks. Clearly the large cap stocks are the beneficiaries of the recent market strength.
* Among the S&P 500 sectors, the AD Lines are strongest among the Materials, Utilities, Industrials, Health Care, and especially the Energy stocks. This fits my money flow data very well. The AD Lines for Technology, Financials, Consumer Discretionary, and Consumer Staples stocks are lagging.
* Despite Friday's highs in the large cap indexes, we had 856 new 20-day highs across the NYSE, NASDAQ, and ASE on Friday against 984 new 20-day lows. Clearly the rally is quite selective at this juncture.
* We see more new high/low strength in the NYSE than in the NASDAQ Composite. On Friday, we had 432 new 20-day highs among NYSE stocks against 409 new lows. But we had 205 NASDAQ new 20-day highs against 369 new lows.
* Among stocks that trade more than 100,000 shares daily, we had 509 new 20-day highs against 467 new lows. Among those trading less than 100,000 shares daily, we had 347 new highs and 517 new 20-day lows. No matter how you slice it, the larger caps come out on top.
* Will those large caps be the ones to benefit as China diversifies the investment of its reserves in search of superior returns? Will the diversion of this capital away from fixed income lead to a rise in U.S. interest rates?
* Will China's participation in the private equity-led takeover boom accelerate the shrinkage of supply in equities, further fueling the market rise? And will China's diversification continue to lead to allocation of capital to Anything But U.S. Equities?
Lots of dynamics favoring large caps here. I'll review money flow numbers in those large caps late Sunday in the Trading Psychology Weblog.