The market looked as if it was going to continue dishing out gains after yesterday’s strong move, however mid afternoon Mr. Market decided otherwise. The Nasdaq reversed course, picking up speed on the downside, to close back under the 50 day moving average on strong volume. Breadth finished negative but not terrible. Bids disappeared in select small caps and a feeling of panic wafted through the air as stocks went into free fall. Other stocks that looked poised to break higher fell back to earth as traders took quick profits and ran for shelter. 

While it was not easy to watch early morning gains disappear, we didn’t hit the eject button as others began to panic. We suspect yesterday’s strong move was not embraced by many traders and as the market began to roll over many were quick to take gains off the table for fear of giving them all back. 2006 has been relatively flat and we suspect many market participants don’t have patience for a market that looks to be on shaky ground. 

While we remain optimistic regarding the bigger picture, we aren’t ready to step into the flames and throw caution to the wind. The market is in prove me mode and until a definite trend is established our #1 goal is protecting capital.  

We made some new buys today in small cap earnings winners looking technically healthy and are inclined to give some positions room to move as we won’t get caught in a panic sell off. Other than that we remain patient and will let the market dictate our actions.  

Have a good evening.

RevShark