Reversal, Part II

Wow! Another reversal day and this time to the upside. Just like Jan. 9's reversal led to downside...Wednesday's is leading to upside. How much? Don't know -- just like I didn't know to the downside. What I do know is that the NEW HIGH LIST has expanded in short order and a bunch of stocks have broken out only a couple of days after a big drop. This shows great relative strength for those names.

You must now pay close attention to the NEW HIGH LIST because that's where leadership has to show up. I really don't care if this rally aborts as long as the market does not crumble. A trading range will be fine as long as we continue to find valid breakouts. Continue to overweight the strongest sectors liken RESTAURANTS, HOMEBUILDERS, DEFENSE, misc. RETAIL, and DEFENSIVE.

Do not buy extended. Do not get crazy...but my #1 indicator for action is how many stocks are breaking out. I hope this continues.

Sentiment is still worrisome...which preceded the latest drop. Bullish sentiment, more than likely, will put a cap on this rally. But play it day to day and remember...stock price performance first, everything else...second.

Use the support levels I have previously mentioned. Even though they were breached, it happened for only one day and quickly reversed. Last point is that there are only a handful of big-caps moving out...like Kraft Foods (KFT | Quote | Chart | News | PowerRating) and Procter & Gamble (PG | Quote | Chart | News | PowerRating). 

The best moves are definitely being reserved for small to mid-cap names. This in itself could mask major index weakness while these leading stocks continue to move.