Conviction is often hard to have in this game, however our continued patience and bullish posture paid off today as Mr. Market showed up to do a little dance and make a little love to start of 2006. The morning started with precarious strength which was hard to trust on a Monday after a Holiday week. It faded early and breadth slipped to 2-1 negative. As the day continued buyers stepped in for a little post holiday shopping and at 2:00 pm ET the party really got going when Fed minutes were released, insinuating a dovish attitude. Although the kinder more dovish Fed is already expected to some degree the market certainly liked the reassurance. 

While the action was strong and broad, leadership was in Gold and Oil, something which leaves us a little worried.  Furthermore, some small cap earnings winners didn’t receive as much favor today, which is a clear case of deferred profit taking as traders were waiting to sell until 2006 in order to push out capital gains tax on big winners. Such action hurt the Sharkfolio today which saw selling in some recent favorites like GROW, LMIA and RWC.

We suspect this strong move caught many off guard and would not be surprised to see follow through. Anecdotally we heard talk about some big short squeezes as traders bet on a repeat of last January’s weakness.  After 2 previous weeks of methodical selling, the S&P 500 is right back at resistance and the Dow and Nasdaq are flirting with breaking their short term down trends. Needless to say, the next few days will be very important to monitor closely for signs of where we go from here.

Should Mr. Market break out from these levels we will be very active in sending new trading ideas your way. It has been a very quiet couple of weeks at Shark HQ but we suspect with some follow through, things will change very quickly.

If today is an indication of what’s ahead, either way it’s going to be an exciting year.

Have a good evening.

RevShark