Where to Seek Alpha?

So where do we go from here? The equity indices bounce from oversold seems to have played out as breadth and momentum indicators have now become overbought, while volume on the upside remained weak. Retracement levels from the early February lows are near typical turning points, even though the major indices have recaptured their 50-day moving averages (and sustained from falling below the 200-day). VIX has settled at support near 20 (where it has landed 3 times since Sept 2009).

It's encouraging (for bulls) to see the strength in small caps, a sign of some interest in more aggressive positions (this could be a play on a strong dollar, which would more negatively impact large caps). From a price relative perspective vs. large caps, small caps are near their highs last seen in September 2008 (and exceeding their September 2009 high). Value is also gaining on growth, as cautious investors seek to reduce risk. Another positive is financials (XLF) appearing to form a price relative bottom vs. SPX (a slight uptrend can be seen as RSI nudges toward 50).

The dollar looks ready to take a breather; although it had been moving inversely to stocks, that correlation has shifted of late (probably driven by higher interest rates). Although Treasuries are looking sick, higher rates would instill a positive aire as economic indicators continue to turn around.

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