FEBUARY 6, 2011

Despite seeing some Distribution Days in late January, the market has remained very strong. Most of the leading stocks have held their 50 Day Moving Average (DMA) and have went on to make new highs. Strong earnings have propelled some of the sluggish leaders into all time highs (examples: BIDU & NFLX) but have put them at unsafe buy points.

The indexes have acted especially strong as the Nasdaq is only 3% away from the 2007 highs. The S&P 500 has traded above its 50DMA for over a 100 days now. This is only the 6th time in the last 30 years this has happened. In 2006 it traded 150 days above and in 1995 it went for 250 days. So clearly this market is strong and could easily grind higher.

To this point, Egypt has proved to be a non-factor in the market. The market has a way of discounting what is not relevant which makes it important to tune out much of the daily news. The 2009-2010 leaders continue to act strong with the likes of AAPL, AMZN, PCLN, CMG, OPEN, ARMH, LULU, BIDU, and NFLX all near all time highs.

The big change in market leadership has been all the Oil & Gas, Energy and Equipment Companies that have exploded on the seen. Stocks like NOV, CAT, DE, and HAL have participated well and there is a clear sign that institutions are rotating into some of these stocks. These are typically not the type of stocks that growth investors are looking to buy.

Retail stocks look strong with stocks like LULU and UA breaking out to new highs. As well, discount broker stocks are showing up with TROW, AMTD and SCHW looking strong. It would seem logical that sales and earnings will increase as the retail investors starts to feel better about stocks and wanting more exposure. They are typically the last piece to the puzzle and late as the market has now doubled off the March 2009 bottom. Regardless, it is bullish to see financial stocks participate.

With all this said, there is some caution that needs to be observed. We are now approaching 24 months on this major uptrend from the 2009 lows. Most bull runs average 24 months before some type of intermediate pull back happens. This is just an average so we could clearly move higher into the spring. Distribution Days are at elevated levels which is a yellow flag to watch. Distribution Days are higher volume down days that indicate institutional investors are lightening up on stocks. Typically when you get to 6 of these Distribution Days the market is in a corrective phase and it is time to be in cash. The Nasdaq currently has 4 Distribution Days.