Earnings lend support to the ongoing uptrend

Positive earnings reports (approximately 70% of earnings announcements have beat estimates) continue to support the uptrend, supported by generally positive economic statistics. The upcoming test will be whether the S&P500 can decisively break through the 1340 level where peaks in February and April marked short-term tops:

The Nasdaq closed a mere 41 points from its 2007 high and likewise is closing in on the potential of a breakthrough of resistance:

In fact, Nasdaq relative weakness (vs. the S&P500) that we have noted here in the past has been resolving itself, thanks in part to strong tech sector earnings. We like to see the Nasdaq showing leadership to help support a positive environment for equities:

As for financials, the same old story of underperformance continues to flash a warning sign:

VIX too has reared its ugly head of complacency as the index has reached a low (under 15) not seen since July 2007. See the chart below:

We view this low level of volatility (as noted in VIX) as an opportunity to hedge long positions with inexpensive puts. There's no sense shorting a strong market like this, as growing participation from retail investors and the "follow the herd" mentality has damaged the shorts while this uptrend continues.

Click here for the latest market tour on Stockcharts.com.