The good news is, the bulls finally started to fight back in earnest today. The bad news is, even with that good fight, it's not like the market cleared any of the critical hurdles it needed clear to rekindle the bigger uptrend. SCN Elite Opportunity Free Alerts Get premium select stock picks via email and mobile text alerts from our SmallCap Network Elite Opportunity Team. It's 100% FREE! No strings attached and no credit card required. Click here to sign-up today! We'll show you why last today. The first thing we want to do is give you a visual representation of how the small cap fundamentals are differing than large cap fundamentals, and what you need to know/do about it. Wow. Small Caps Really Are Undervalued. In yesterday's newsletter we promised you we'd take a look at the valuation picture for the S&P 600 Small Cap Index and how it compares to the S&P 500. While we generally know the S&P 500 is priced at levels we don't especially care for right now, we're not quite as pessimistic on small caps simply because they've not raced out of control the way large caps have over the past several months. A valuation picture of the S&P 600 would give us a better idea of just how underestimated it might be. Well, we did the math, and I gotta be honest.... I was surprised how relatively undervalued the S&P 600 was. Just to set the stage a little, here's the S&P 500's earnings and P/E data chart. We're currently valued at a trailing P/E of 18.13 and a forward-looking one of 17.1. Both are above long-term norms. Here's the S&P 600's equivalent chart. It's presently valued at a trailing P/E of 24.17, and a forward-looking one of 16.87. Don't sweat the frothy trailing P/E in the mid-20's, as small caps are always collectively more expensive than large caps. What I'm kind of stunned, though not exactly surprised, by is the fact that small caps are cheaper than large caps on a forward-looking basis. I don't recall that ever happening. That forward-looking P/E for the S&P 600 is in line with its long-term norms too. The same can't be said of the S&P 500 large cap index. It would be easy to dismiss the data as erroneous. I'm not going to do that though, and I don't recommend you do either. The same people (Standard & Poor's) who are giving us the large cap data are giving us the small cap data as well. If we trust one data set, we have to trust the other data set. And for what it's worth, while the S&P 500 posted a small decline in earnings last quarter, the S&P 600 reported an 8.38% upswing in net earnings. It's the kind of disparity that underscores the whole "small caps are looking better than large caps here" thing we've been saying for a while. Why aren't small caps hitting the same headwind large caps are? Like we explained yesterday, most U.S. large cap stocks are multinational companies and are finding it tough to remain price-competitive overseas. Small companies that don't rely on foreign sales couldn't care less about an overpriced dollar. I know this seems like a big, theoretical idea.... and it is. I'm telling you though, this is one of those philosophical discussions that merits actual action. So what's the plan? Honestly, this is one of those things that's bigger than this newsletter and what we can put in it. We're not doing any stock picks here in the newsletter anymore anyway, as we've delegated that job to the Elite Opportunity team. The guys over at the EO have picked some nice winners for the folks on that list too. If you haven't signed up for it yet, what are you waiting for? It's free. Just go here, or cut and paste this link: https://www.smallcapnetwork.com/pages/SCNEOL/v1/ That being said, this is one of those big, overarching scenarios where it would pay get the whole enchilada and become a full member of the Elite Opportunity service. John Monroe and his gang have the time and the resources to develop a complete portfolio strategy to capitalize on the change in tide that favors small cap stocks here. In fact, it may only be a coincidence, but I can already see the Elite Opportunity portfolio's focus turning from large caps to small caps. If you've only been a tire-kicker up until this point, the tidal shift on the way this year is a perfect reason to get on board now and start getting the Elite Opportunity newsletter. Knowing about the budding trend doesn't do you any good unless you're actually willing to do something about it as well. Here's the deal, or cut and paste this link: https://www.smallcapnetwork.com/pages/SCNEO/v1/. The 30-day money-back guarantee also means you can take a risk-free test drive. The Rest of the Retail Spending Story Retail spending numbers were reported by the Department of Commerce this morning. Though retail consumption fell 0.6% overall in February and was off 0.1% when taking automobiles out of the equation, as usual, there's more to the story. When we showed you this data a month ago, it took a nano-second to recognize the vast majority of any dip in retail sales in January was due to stunningly low gasoline prices. (Yes, gasoline sales are part of this calculation.) Any chance we can blame low prices at the pump for February's lull? I'll answer the question, but before I do so, let me show you the chart so you can decide for yourself based on the visual representation. Alarming? At first glance, yes it is. The last two months have been rough - and progressively worse - no matter how you slice the data (with or without food, with or without autos, etc.). The more I began to explore the numbers though, the more I realized I, and maybe all of you, may have fooled ourselves into thinking things are worse than they really are. The fact of the matter is, as far as retail consumption is concerned, things are actually rather good. It's an idea we brought up the last time we had this chart about January's numbers in mid-February, but it merits repeating now - all of the real (and I'll explain that in a moment) dip is attributable to low gasoline prices. In February of 2014 we spent $46.3 billion at the pump. In February of this year we only spent $35.6 billion at the pump. I know the theory is that whatever consumers save at the pump they're supposed to spend elsewhere. We're talking about $11 billion extra dollars consumers weren't expecting to have in their hands last month though. I'm not sure they know what to do with it all. Be that as it may, just on a hunch I started cross referencing last month's retail spending data with spending levels seen in February of 2014. Every single stratification I can access (I only used the big four on the chart above, but there are about 20 of them) that excluded gasoline sales was up compared to the year-ago figure. Yes, February's numbers were weaker than January's, but they're supposed to be weaker than January's - they always are. The litmus test is the year-over-year test, and folks, we passed that test with flying colors. That's not to say consumption is as strong as we'd like it to be. But, it's not as bad as today's headlines would lead you to believe. Cheap gasoline is the culprit. One Day Does Not a Trend Make This'll be quick, because there's not a lot to say. Yes, stocks rallied firmly on Thursday. It was the best day in a month. Yet, the best the S&P 500 could muster was a revisit of the well-established ceiling at 2065. Volume wasn't bad, and to give credit where it's due, we're only one bullish breeze away from getting back above the pivotal 2065 level. Even then though, the 20-day moving average line stands ready to cap any rally effort at 2093. For the time being let's remain on the sidelines, but don't go too far away. This is an inflection point for the overall market, but it's a multi-day process getting through it. In the meantime, don't forget to sign up for the free stock pick alerts from the Elite Opportunity service. I've got a funny feeling a new pick is right around the corner.