Mr. Market continued to bring the ‘A’ game today, as the indices garnered strength throughout to close near highs on decent, but unspectacular, volume and positive breadth. Sector leadership was in technology and small caps but close behind was gold, once again putting in a strong showing. Small caps showed good strength today and wood shed warriors which were badly abused in recent weeks came back with a vengeance, such as Sharkfolio holding U.S. Global Investors (GROW).

The action has been very hot, but with only 2 days notched in 2006, we suspect the bullish activity could continue due to catching so many unprepared and off guard. We aren’t sure at this point what to make of the defensive sector Gold, showing such strength. Normally this would not bode well for equities, but the strength seems to be coming from demand especially in China and India rather than dollar denominated weakness. It may simply be an asset class that can be played for positive returns and not indicative of underlying inflation which is a big problem for the equity market. With the inverse correlation between the dollar and gold ending this may be the start of a very long and strong move for the yellow stuff. We’ll be watching how this plays out closely and will keep you abreast of our thoughts here.

Today’s follow through increases our confidence of this current bullish activity. All major indices have shaken off their current short term down trends and we suspect many money managers are scurrying to find buys not wanting relative performance to get away from them. We’re letting our longs ride and only doing prudent money management, taking some profits here, and ditching some laggards there.

We will be watching indicators very closely for signs of topping action but at this point don’t see much to indicate the party is over. For now we’ll continue to act fast on our feet and enjoy the ride.

Have a good evening.