Market hanging tough

While price is key and we don't fight the trend, positive sentiment, low put/call and VIX readings suggest a cautious although bullish stance. Weakening momentum suggest a pause (minimally, a consolidation of recent gains); hedging with partial shorts and covered calls.

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Correction in motion

Signs of a relapse in economic weakness coupled with mediocre quarterly results has weighed on this market. The extremely positive sentiment as measured in bullish metrics as well as low put/call and low VIX support a correction of this overbought market. Time will tell whether this correction is part of a trend reversal following such strong market gains since March 2009.

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Can't ignore the positive signals

Market uptrend bias continues, with renewed strength in NASDAQ and small caps. Continued weakeness in financials overhangs the markets, as does a firming in the dollar. Many foreign ETF's have begun to downtrend; they were early leaders in the recovery and benefited from a weaker dollar. Their tiring uptrend (see EFA, EMA, EPP, EPI) and the dollar's bounce may represent a leading indicator of a waning US equity market in the new year.

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Bullish Stance Persists

Indices continue to trend upward (IWM has recently shown renewed strength). Market Breadth (NYMO, NYAD, etc.) are improving. A shift in the dollar/gold trends represent some risk to equities based on their inverse relationship since March 2009.

Cautiously Bullish

Strength in strong revenue-growth equities (typically captured in the IBD 100) and improvements in market breadth suggest continued opportunities to gain on the long side. The looming threat is resistance, which has been foreboding. One refreshing sign is the new high achieved by the Tranports, re-affirming a Dow Theory buy signal. Our strategy is to add strong stocks in basing patterns and to protect profits with trailing stops. We remain cautious, as a potential shift in the trend in Gold and the US Dollar bode potentially negative to equities, which have travelled inversely to these two asset classes.

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Unemployment Report "Judgement Day"

A late day selloff, continued weakeness in market internals and deterioration in financials piled on the bearish omens. Most sectors however remain in uptrends. Rather than fight that trend, we will await the unemployment report on Friday and review the markets again following tomorrow's action.

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Recoveries from sell-offs are swift; weak sectors (IWM, XLF) continue to consolidate on a weekly basis, but have displayed some modest relative strength on a daily basis. Major price trend remains up and we will continue to participate in the uptrend with cautious stops set along the way.