Today’s action could very easily be misconstrued if you just monitored the major indices. Caterpillar (CAT) shed over $5 or 9% and weighed down, acting as an anchor on the Dow which closed down over 60 points. The tech heavy Nasdaq tacked on over 14 points or .68% and the Nasdaq100 which is dominated by capitalization technology stocks did even better. Most promising of all was breadth which was very solid with nearly 2 advancers for each decliner. The Nasdaq is outperforming the other indices and is in good shape above recent lows.

As is typical in many new moves higher, what we suspect is taking place is a healthy sector rotation. Previous leaders such as energy and housing are being sold and money is shifting into new areas with better opportunities for growth. We have mentioned several times we were noticing resiliency in technology, primarily the semi-conductors and as earnings season is now in full swing it is becoming very clear who the winners are that should take us higher.

Despite the improved action and our increasing optimism going forward, we can still not throw caution to the wind. While we are starting to see more opportunities in the stocks that we favor we have to be on our guard should this market roll over for another leg down. Keep a very close eye on recent lows as they are important support levels. If we start to slip back to those levels the prudent move would be to raise cash quickly.

We suspect that due to the recent volatility many participants will not trust a move higher, which would bode well for the market climbing a wall of worry. For now it will be important to continue to monitor company earnings and watch key technical levels very closely. We have the Federal Reserve interest rate announcement next Tuesday afternoon and that is likely to produce some thrills and chills.

Enjoy the weekend.

RevShark