Euphoria

Given the recent history of strength on the first day of a new month, it isn't too surprising that we had a positive day, but the intensity of the buying still caught many folks by surprise. Volume was good and breadth quite impressive at almost 4 to 1 positive.

We went from an ugly breakdown on Friday to a euphoric breakout today. When things shift that quickly, a lot of market players are going to be caught out of position, and that tends to add to the momentum as they anxiously try to reposition.

So now that we have been whipped around, the issue is, do we return to the straight-up action that we saw for the two months prior to last Friday, or do we have increased volatility ahead? The bears have had their chances, but they squandered them yet again. That is certainly nothing new, and typically we just continue to trend upward after we shrug off a downside push.

The two biggest obstacles that the bulls face going forward is that most of the important earnings reports are now out of the way, so there is less likelihood of positive news, and seasonality starts to turn negative. We had a great example of positive seasonality today with the huge gain on the first day of a new month. Following through after that is not a sure thing at all. In the bigger scheme of things, the positive seasonality we enjoyed in December and January also comes to an end as we move into February.

The bulls are obviously in control of this market and deserve the benefit of the doubt. Today they had the big advantage of the money flow on the first day of a new month, and now they are in good shape for continued momentum. Whether we can continue to run without better consolidation first is the big question and should give us an interesting battle over the next few days.