Positive Developments

One gauge we use in determining the internal strength of the markets is to assess the number of fundamentally strong growth companies forming solid bases or breaking out from trading ranges. In reviewing our evening list of over 5,000 equities and ETF's, we have identified a relatively large number of "buys."

Several equity ETF's, including efa, ewt, eem, epi, sectors such as xlp, dba (significant moves in agriculture including sugar are driving this one), xlu, smh (a motley combination) are showing a pickup in relative strength. Not all equitiy indices are in downtrends.  Although the Dow and SPX have yet to break their downtrends from the April 26th high, they appear to be forming a back-and-fill formation.  With today's recovery from early losses, the market mood has shifted in favor of the bulls.

We are not fully committed on the long side, however. Interesting to note strength in bonds today along with the recovery in equities. We plan to commit 60% long equities to take advantage of what might be a 2-4 week ride, protecting along the way with trailing stops.  Gold is looking like an interesting short at this time.

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