Second day into the trading week, market again exhibited some very strong action.   Overall, today's volume is better than the last few trading days, but the late day sell- off to finish 935SPX may suggest some more downside in the morning.   The question though, still remains, are we due for a pullback?    Up to this point, some of the individual plays have been going through one of the best run-ups during last three months.    If last week was not a holiday week,  then this would've been easily considered the best rally since summer.   The rally has been working pretty well in unison with the recovery in treasuries for some reason.  Overall,  we are seeing a return to risk within all the markets which bodes well heading forward.

Here's the problem for those who want to chase though.    The volume has been below normal and price action has been literally straight up.    Yes, you can point out the fact that today's volume is much improved and price action held up pretty well.    However, we did note some weakness in crude price (tried to rally to ~50 again, but maybe is hitting a wall here)...commodity stocks, a weaker USD and a pullback in treasuries in tandem as the day progressed.   Watch if this combo continues to halt this melt -up.    If this market wants a chance to see SPX 1000, (there is not much resistance above),  we better pullback some and build a tough support.    This is a tricky week as this is officially the start of the "earning warning" period.  We've had a bunch of small  tech names warn already this week, but the semi's/ hardware were probably best actors today.  So, it's the bigger names that we'll determine course.  Thsi may become the resistance if a noteworthy co' reports one.   As far as reaction so far to earnings,  we saw a quick 8% drop (high 44's) in MOS from pre-mkt prices, yet it recovered.   After this watching action,  we can't say this is going to be a repeat of last Q when stocks earnings were priced in and even a bad report made a stock go up, ( notably Steel stocks ).  We're simply not convinced by MOS's bounce action, just yet.

It's also much too soon to believe the idea that "market is discarding all the bad news" because we really haven't had any bad news 2-3 trading days into the 2009.

Right now,  with the way market behaviour last couple of days,  we can't discount the possibility that it'd go even higher without a meaningful pullback and the premise of not fighting the tape may still hold.  However, given the high probability of an immediate pullback, we are definitely not comfortable chasing anything again on strength.  The only notable strong ones with a good setup out there are the insurance co. like HIG PRU.  This class performing well probably because credit market performance has improved and further measures could be taken in an effort to further bolster credit markets and/or just a bunch short covering as we are seeing the past few days all over the market.   They actually had a pretty good base since the last breakout and we feel there might be some more upside if this market holds up.

Bottom line, it can be frustrating sometimes when the market isn't behaving the way according to your gut feeling.     Therefore, it's even more important now to trade off the facts than any emotional swing.