Small Change, But a Big One

Please excuse the ambiguousness of the headline. Today's market movements were minimal, but the impact - for those paying attention - could be huge. Yesterday it was noted that while the Dow stumbled, the NASDAQ was having somewhat of a banner day, posting a gain of 20 points, which is close to 1% on that index.

Today was affirmation of our best hunch - that traders were moving away from Dow stocks and large caps to techs, mid-caps and small-caps. Contemplating the huge sums being paid by private equity to take certain companies private, it's obvious that there are a lot of undervalued companies out there. The private equity vultures are primarily interested in major names with established brands - a somewhat disturbing trend in itself - so the small and mid-caps are going to get the lion's share of attention during this summer's trading outside the M&A speculators.

Dow 13,539.95 -2.93; NASDAQ 2,588.02 +9.23; S&P 500 1,524.12 -0.98; NYSE Composite 9,900.96 +3.50

There's a caveat to the trade and it's called timing. Once the S&P tops its previous high, all bets are off. The markets could - and should - go on an unprecedented tear to the upside, similar to what the Dow has done over the past month and change. While the S&P will capture most of the headlines, the NASDAQ will be humming along with even more spectacular gains.

Remember, that since the downturn in 2000, the Dow has come all the way back and then some while the S&P is teasing us with a new all time high.

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Meanwhile, the NASDAQ has recovered only half its heft since the crash. Surely it was overbought back then, but by 2500 points? Doubtful. Figure that the top 20-25% of the Naz was real froth, so we're looking at an achievable number of 3,800 to 4,000 in relatively short order.

While that may sound like a stretch, take into consideration that the Naz crossed back over 2000 in January 2004 and has taken more than three years to gain just another 600 points. All the money that was being made on the Dow and S&P is going to get reinvested, and the most likely place for that to occur is on the NASDAQ and especially in computer and related devices, internet plays and generally anything that involves using a computer chip.

Computers and the internet don't use gas, and that's a major consideration. Media companies that are not newspapers should also do well, as will any disruptive technology company.

Advancing issues were better than decliners by a 4-3 margin. New highs outnumbered new lows, 433-68. The US dollar continued to show strength against most European currencies, though the weakness against the Yen (Japan) and Yuan (China) is still a concern. Oil dropped $1.30 to $64.97, gold and silver were down (again) and that's a wrap.