Monday, July 26, 2010

Small-Cap Rally

The action today felt much like it did in March or during one of the many V-shaped bounces we had in 2009. It was just a steady move higher with consistent underlying support from dip-buyers. What droves the rallies off the March 2009 low were chronically underinvested bulls who never really embraced the market. With sentiment being quite poor lately, it looks like déjà vu as the market embarks on another V-shaped move.

The most interesting thing about the action today was that the small-caps led, rather than some of big-cap momentum favorites like AAPL, GOOG or VMW. I'm not sure why that is the case. Perhaps market players are trying to regain performance by chasing high-beta small-caps, but I'd still expect some of the high-beta big-caps to act better.

The S&P 500 managed to climb above the 1113 resistance in the final minutes of trading, and it is not showing much hesitancy at all. I thought there would be a little more of a pause before we would crack that level, but this is a market being driven by fear of being left behind. Too many folks struggled with that over the past 15 months, and they aren't going to let it happen again.

So once again, we are back in the familiar situation of being extended on light volume but with no signs of weakness. This is the point where many market players have gone crazy over the past year, as we would just keep on going and never offer any easy entry point along the way.

If there has been a lesson to be learned in this market since the lows last year, it is that you shouldn't fight the strength no matter how technically poor it might be. Volume and overhead resistance just don't matter much when we have one of those runs. It is understandable that you might be hesitant to buy, as we look quite extended, but more importantly, don't be too anxious to try to short this action.

long AAPL

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