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Perfect Action in our Rally

Our rally continues. Today was great action – its called backing and filling – as the market moves up giving weak hands a chance to sell, and strong hands a chance to buy. It is also a great opportunity to reposition portfolios.

We have been using upswings to sell weaker holdings that don't fit into our current strategy (focusing on Ag, Tech, Financials, Energy, Gold) and buying stocks in our areas of focus on downswings.

Looking at the chart, you can see that the market put in at least an intermediate bottom a bit over two weeks ago. If you've been reading this blog, you will recall the entry the day prior to the bottom where we noted that many conditions precedent to a bottom were present.

We are now at the phase in the rally where we consolidate the gains. Its healthy and needed for this rally to continue for the next 3 to 6 weeks. We'll likely fall back a bit and give investors who have cash on the sidelines a chance to get invested. That will keep the rally moving forward. The technical indicators show that we are currently overbought, so we are preparing for the pullback. If you are sitting on cash, you will get the chance to buy – if you haven't bought yet, its best to wait until the pullback.

We have some headwinds ahead of us in the intermediate term. Earnings season is coming up and it won't be pretty. That will put downward pressure on stocks as investors worry about the future. But, it won't derail us from touching the 200 day moving average around 950 on the S&P 500.

Keep the faith!

Mark