While a handful of leaders have recently re-asserted themselves, this action doesn’t necessarily mean the market moves higher from here.

We are in the interpretation business, so we are sure to never fight the market action, which is always right regardless of our opinions. Our job is to interpret what the market is doing and adjust appropriately. Accordingly, I’ve added some additional long positions and find my portfolio is fairly evenly hedged in this volatile, uncertain market environment.

I am still suspicious of this market longer term. Next week begins another earnings season and earnings are projected to be, once again, very strong. I cannot see any other meaningful catalyst, but remember, last quarter’s earnings were excellent (by and large) and the market was unable to lift and move higher.

The last six up days in a row with closes at the top of the range on the Nasdaq have been positive, but all of the up days have been on volume less than the 50 day average volume. Last week’s action has taken us to the top of our overhead resistance levels. The market needs to hold and consolidate at these levels so that proper bases can form and then have breakouts.

All of this adds up to a market that could go either way. In such a mixed environment and late in the cycle, we always want to remain patient and err on the side of caution.

Best Returns,

Scott O’Neil

MarketSmith, Incorporated