The market is enjoying the favor of the people short term. Take what the market gives, but remember the volatility is still in play as well as the current trading range. Nothing has really changed expect the short term direction within the range.

Technically the market is making the right moves to the upside. The break above 1115 on the S&P 500 was positive. Add the S&P 600 small cap index hitting a new high yesterday and you have the right leadership in place for the broad markets to move. I find small cap leadership a good indicator for the markets relative to economic growth looking forward. Thus, technically we have all the reasons to believe in this rally. That doesn’t prevent us from managing the downside risk of the markets as we move forward.

There is still plenty of data points for investors to ponder as we move forward in this bounce off the February low. The dollar is dealing with resistance on its trek higher. The 81 mark on the index has met with selling every time the dollar makes a move to the upside. Yields on the 10 year have been pushed back to support on the fear factor. 3.56% is the level to watch and if this rally continues in stocks the fear will be removed and a move back near the 3.8% level arise. That is a trading opportunity as well covered on the Watch List.

Oil pulled back to $78 to test the bottom of the consolidation pattern. We moved back near the top yesterday and could be poised to move higher. Again this is dependent on the move in equities which impacts the demand outlook.

Gold broke higher as reflected in GLD. The move above $110 was positive on solid volume. The break of both the downtrend line and the top of the recent trading range show some upside potential for the metal. I would be curious to see if this is the move to test the high of $1200 an ounce on gold?

I find it interesting to note when the markets are selling how investors are willing to give reasons it shouldn’t be and when the buyers are stepping in and pushing it higher they are questioning the motive behind the move. It seems the opposite of what we really should be saying. From my view the recent selling was justified and the current buying is suspect. I remain in the consolidation camp as the economic data makes its adjustments to slower growth. The projections for 2-3% GDP would justify changes in the data over the coming months until it settles into a comparable growth cycle. Be disciplined and take what the market gives, but don’t get too greedy in this current move higher.

Watch the leadership as it unfolds in this rally. The key component I already discussed is the participation from the small and mid cap stocks. This is the move I expected in January from both of these sectors. It was sidetracked by the selling in the large cap stocks and broad markets. Watch both for a continuation move to the upside. Technology has come back to life, but it is still struggling to move above the 50 day moving average short term. Apple has continued its run higher off the 4 for 1 split rumor and is heading towards the January high. Healthcare is moving again as biotech breaks higher along with the medical devices.

Plenty to like and technically the pattern set ups are starting to break drawing money into the markets on momentum. Remain disciplined and focused on your strategy for managing your money. Don’t get caught up in the performance of the market currently. It is easy to start looking at returns versus managing the risk associated with each holding. Remember the goal, set your stops and invest one day at a time.

Have a great day investing.