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Small Cap Stocks Lead Gains As Market Overcomes This Sector's Slump

Small cap stocks led the market Tuesday as investors grew more confident that the U.S. and China are making progress on trade talks.

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Trade negotiators have narrowed differences in Beijing, with discussions slated to continue into Wednesday, The Wall Street Journal reported. The two sides remain quite a distance from an agreement, the report said. Still, President Trump sounded optimistic, and it was a forward step for one of the biggest clouds hanging over Wall Street.

The Russell 2000 rose 1.4%. Small caps led the market into its 20%-plus rout of late 2018, and now the Russell 2000 is up more than 12% from its December low.

Certainly, there was more to Tuesday's gains than small caps. The Dow Jones industrial average climbed 1.1% and the S&P 500 1%.

The Nasdaq composite climbed 1.1% despite broad selling in semiconductor stocks. The Philadelphia semiconductor index slid 0.5%, while IBD's chip equipment, chip design industry groups were among the bottom 10 of 197 groups Tuesday, down 0.4% and 1.2%. But the chipmakers group rose 1.1%.

Samsung sharply cut its fourth-quarter operating profit forecast, citing soft demand and rising competition. Some chip companies are unveiling new products and technologies at the annual Consumer Electronics Show in Las Vegas. Nvidia's (NVDA) new gaming processor did little for the company's shares, which fell 2.5%.

Volume Lower, Breadth Bullish

Indexes closed near session highs, after rebounding from a morning stumble. Volume fell from Monday's totals, according to unconfirmed numbers. Breadth remained bullish, with advancers topping decliners by a 2-to-1 ratio on the NYSE and by about 7-to-2 on the Nasdaq.

Leading stocks tracked the main indexes, as the Innovator IBD 50 ETF (FFTY) added 2%.

Some technology companies displayed strength, such as Atlassian (TEAM). The IBD Leaderboard stock followed through on Monday's breakout after rising 2.3% Tuesday.

Innoviva (INVA) made a new high, extending a heated climb since the biotech found support at the 50-day moving average Dec. 26. It is now extended from a secondary buy area.

Keep an eye on Wingstop (WING). The stock, discussed in IBD 50 Stocks to Watch, is quickly forming the right side of a cup base with a 72.10 buy point.

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