Bulls Keep Hope Alive

The major averages all closed up about 0.7%. The Small Cap sector was the strongest yet the Semiconductors lagged (despite the strong performance from Intel (INTC)). However, there was slight improvement in the Semi's at the tail end of the day. Key stocks that lead today's rally were Cisco (CSCO), Time Warner (TWX), Sun Microsystems (SUNW), Qualcomm (QCOM), Hewlett-Packard (HPQ), and Marvell Technology (MRVL).

Gold was strong again which is ominous but Oil continued to slide. Oil should find support between $60 and $62 per barrel. The slippery slide in Oil today helped bolster the Transports. Stock market breadth was slightly positive and volume was HUGE (you can attribute the heavy volume to options expiration). A very large concern today was the big drop in the Volatility Index (VIX) -10.2% to 11.22. Complacency came ROCKETING in; another sign of trader amnesia!

When it became clear to us last night that the stock market was short-term over extended on the downside, we covered our shorts and even added long exposure. The market rewarded us with a steady upward move today. Note: we haven't turned Bullish. It's just that we were in no mood to lose money on our shorts when it was so evident that a squeeze was imminent.

The Federal Reserve meeting on this upcoming Tuesday should (as Jessie Jackson says) "Keep Hope Alive". Therefore, the stock market will likely maintain flat to slightly up-drifting action. Buying in anticipation of the Fed is a favorite pastime for traders. However, due to the fact that this is most likely a countertrend within a downtrend we will probably hit the eject button on Tuesday before the Fed announcement.

If You Held a Taser to Our Head:
We expect the good cheer to spill over into the Semiconductor sector on Monday. After all, the Small Caps and Semi's have been so polite to each other lately taking leadership turns. Therefore, we are adding a little exposure to Merrill Lynch Semiconductor Holders (SMH) after hours tonight, and intend on holding it for a swing trade up until the Fed announcement.

Have a good weekend. See you Monday Morning.

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