It’s not impossible to find a penny stock or bulletin board stock that’s pointed higher as of today, even in a bearish market environment. It is tough, however, to pinpoint the small and micro cap stocks that are actually trending higher (rather than being a one-day-wonder), and doing so organically (rather than entirely prompted by news…. which is short-lived). Fortunately, we were able to identify six such stocks this morning.

In all six cases, a little more due diligence is merited on your end. We find it interesting though - and compelling - that almost all these new rallies didn’t require an event or announcement to get started, and they’ve been in place for at least a few days. There should be some solid trades packed into the bunch.

All you can see on the daily chart of Mymetics Corporation (OTC:MYMX) is a lot of volatility. When you back out to a weekly chart though, the paradigm shift from early in the year becomes evident…. and is still intact. There seems to be something of a ceiling around $0.18 and $0.19, but with the way the bulls are putting the pressure on now, it should be too much of a problem.

After Visual Mgmt Systems Inc (OTC:VMSY) surged on high volume in May, and then faded again, it looked like this penny stock was just going to be another one of those one-and-done charts. The last few days, however, have been curiously bullish. It would be hard to say this was trade-worthy accumulation yet, but the Visual Mgmt Systems bulls sure aren’t backing down.

The daily chart of Command Center, Inc. (OTC:CCNI) is actually pretty intimidating… up from $0.1 early in the year to $0.32 now. That’s a tough act to follow, and may steer some traders clear. Take a look at the weekly chart of CCNI below though - this penny stock hasn’t even come close to challenging prior highs. This slow, bowl-shaped reversal could mean a monster trade is in the making with Command Center Inc. The trick is finding a less-frothy entry point.

Global Investor Service, Inc. (OTC:GISV) is largely a clone of Command Center Inc, in that that recent short-term pop is daunting, but the weekly chart reveals that the recent move higher is nothing in comparison to this micro cap stock’s long-term history. As was the case with CCNI though, the trick with GISV is finding the right entry…. if this rally is indeed the beginning of a bigger move higher.

This might be the weakest-looking of the six stocks we’re reviewing today, but American Commerce Solutions, Inc. (OTC:AACS) is still worth a look. The slow grind higher on persistently-good volume over the last few weeks has been enough to get the chart in a position to turn the tide. Bluntly though, this one needs to build a little more foundation before being healthy enough to move on. It’s definitely something for your watchlist though.

There’s still a resistance line at $0.23 that Biomoda, Inc. (OTC:BMOD) needs to knock out of the way for this penny stock to get over all its hurdles, but that effort is underway. Other than that, the recent rise in buying volume is a healthy sign of life, and the potential upside is evident in the chart’s recent history.

In any case, there are six off-the-radar ideas that should be on your radar. No news, no hoopla - just solid accumulation efforts that could be an omen of much bigger bullish moves.

We’ll post more OTC bulletin board stock accumulation trends later this week or early next week. Stay tuned.

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Guess where the only place to hide last week was? You got it…. gold stocks continued their tear. As we’ve said before though, gold is now going higher fueled entirely by speculation and performance chaser, and that’s a setup for a big, fast tumble once those buyers look down and see how far off the ground they are. Energy was the biggest loser last week, while the big winner - financials - only ranked as a winner because of Friday’s strong buying.

As far as any trade-worthy trends here at the sector level, we see nothing consistent enough to buy into, or short. That’s not true for the industries though. Take a look.

Sector Performance

Well this is odd…. energy refiners were well up for the week, though the broad energy sector was down. That trend has actually been materializing for a while now, and may be one of the few long/bullish ways to make any gains in this tepid market environment. That said, the strength in the heavy electrical equipment group is nothing new either. Yes it’s far from exciting, but the consistent and reliable progress we’ve seen from the group merits consideration.

As for the laggards, most have been habitual losers for quite some time now. Note how two of the bottom six industries were from the retail arena… a clue that of what other closely-related industries may be headed towards.

Industry Performance

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As we mentioned a week ago, home sales and home price data would kick-off last week’s trading, and round out the picture of the real estate industry that first started being patient by the prior week’s building permits and housing starts. Bluntly, things continued to look bad.

Existing home sales fell from 5.79 million to 5.66 million units, while new home sales fell from 446K to 300K (annualized). Both were below estimates, though one should note that in the aggregate, the total number of homes sold (new plus existing) didn’t plummet. It mattered little.

Homes Sales - New, Existing

Durable orders with or without transportation orders both came in under estimates; they fell 1.1% with transportation, but at least grew 0.9% when factoring transportation in. Still, it all points to a slowdown.

On the unemployment front, both new and ongoing claims were below estimates, yet both remained in line with recent readings; they were 457K and 4548L, respectively. It’s a positive that neither are trending higher again, but investors are understandably getting more and more concerned that the number is stagnant.

And finally, the University of Michigan Sentiment Index rolled in at 76.0 for June, up from last month’s 75.5, and above expectations of another 75.5 score. That said, we’ll remind you that this particular confidence measure hasn’t proven all that useful to investors; it pales in comparison t he Conference Board’s equivalence measure.

Economic Calendar

As for the coming week, we’ve got even more in store….  more than we can look at in its entirety. Here are the highlights to look for.

• Personal income and personal spending are due on Monday morning; these may well be the ultimate measure of consumer health right now.
• The Conference Board’s consumer confidence number is out on Tuesday,
• Construction spending and pending home sales will be posted on Wednesday, but for May’s numbers - don’t be shocked if we see the same post-tax-credit-dip we saw with related numbers.
• Nonfarm payrolls and the unemployment rate are slated for Friday, and both are expected to show an increase in lost jobs - unemployment should tick higher to 9.8%, and nonfarm payrolls are expected to show a loss of 100K jobs. Let’s hope that’s just some sand-bagging.
• Also on Friday, factory orders, hourly earnings, and the average workweek are scheduled, though they don’t have a major impact on stocks.

Don’t miss out on the complete economic picture any longer (the one the media should be giving you but isn’t). Sign up for the free Micro Cap Press newsletter today, and start receiving weekly commentary like you saw above, as well as stock picks and sector calls.

In the ongoing effort to make MicroCapPress.com more helpful to you - the individual investor - I’ve decided to add a new element to the site’s ongoing commentary… my ’sandbox’ portfolio, where I can keep tabs on stocks, sectors, and themes I’ve talked about in prior newsletters and blog posts. My expectation is that this will provide a great deal of continuity to the commentary, which will ultimately allow all of us (me included) to make important decisions about which trends are still working, and which aren’t.

To be clear [and consider this the disclaimer], this isn’t to be considered ‘advice’ in any way, shape, or form. It may look and feel like a portfolio, but trust me - it will not be… it won’t even reflect my ‘real money’ portfolio. The purpose is simply to help me better explain my thought process, illustrate how portfolios can be aligned with themes we discuss, and to track trends and suggestions I’ve made over time…. since they can easily fall by the way side.

I’m certain the sandbox portfolio and the discussion of it will evolve over time - especially out of the gate. So, I’m not going to blather on…. you’ll see it as it’s happening.

In any case, to get the ball rolling, I went ahead and hypothetically picked some stocks for the portfolio based on recent discussions. There’s no need to explain them all, but I do want to make a couple of comments about some of them as well as about the portfolio’s current attributes.

Portfolio Allocation

As of right now, I’m 65% ‘invested’, leaving 35% behind in cash. My tech-sector allocation shows as 38%, but that’s 38% of 65%. My actual ‘total portfolio’ allocation towards technology is only about 25%. (Clear as mud, eh?)

Isn’t that still too much? Yes and no. For real money, yes. For a playground portfolio, no. Even if it were a real portfolio though, I would still go as high as 20% towards one sector, if it was the right sector. And, I really believe tech is one of those sectors right now, per my comments from May 27th. It’s not the only sector I like right now, but that’s where I’m finding several really good micro cap opportunities.

You’ll see a lot of telco too. Remember though, that was one of the arenas that emerged as a leader when I last looked at sector strength on the 17th. I made sure to pick up a utility name too, based on the same study.

In any case, here’s the portfolio; I’m going to add holdings at 5% of the portfolio’s value. (Twenty holdings is enough to stay diversified, and probably more than I can feasibly keep tabs on - yikes.)

Notes on Select Stocks

See any familiar tickers? AXT Inc. (AXTI) and Scientific Learning (SCIL) were two of the stocks I discussed back on June 2nd… shortly after the tech sector call. That’s no accident. The other stocks I mentioned that day are fine; I just liked these better.

Companhia Energetica de Minas (CIG) is not the ADR I mentioned a couple of days ago. Oh, it’s a Brazilian utility company like CPFL Energia (NYSE:CPL) is. It just looked as if CIG’s chart was more opportune at the time. Both will benefit from he same growth trend. Telus Corp. (NYSE: TU) was a specific stock I mentioned in the same write-up a couple of days ago… no need to substitute, as it offered the best risk/reward at the time of the decision.

The one big hole I see is energy, but I plan on filling that in this coming week.

Anyway, you get the idea - it’s fine to talk and theorize all you want, but at some point we have to put the ideas into action, and then test them. The sandbox portfolio will let us do so in a logical, organized way. The coolest part of all, however, is that it will force us to find the best of the best ideas and focus on them, as we don’t have infinite room for stocks and ETFs in a static portfolio.

(Also, ten points are awarded to those who realized that for the first time ever I used the word ‘I’ in a publicly posted message.  I still intend to use an unbiased and professional voice for most comments, but when you see the word ‘I’, you’ll know it’s something that’s less newsy and more personal.)

The mainstream media wouldn’t put their comments and ideas on the line like this in a million years. If you want real and actionable commentary - with follow-up - sign up for the free Micro Cap Press newsletter today.

We opened this can of worms with Monday’s newsletter, pointing out how some disappointing housing starts and building permits numbers from last week weren’t the cause for alarm most of the media deemed them to be, as the peak in those numbers was quite typical for this time of year.

Of course, the market imploded since then, but we’ll stress again that’s got little to nothing to do with real estate or building activity. The stock market’s going lower for a combination of reasons, two of the biggest being a lack of confidence, and the calendar.

With that in mind, and knowing that the long-term market trend will ultimately reflect long-term economic data (in spite of the recent volatility), here’s the latest report card on the real estate market’s numbers from this week - sans starts and permits - good, bad, or otherwise. The chart’s at the bottom.

New Home Sales (Purple)

Yes, the number went down…. surprise surprise. The annualized rate of 300K per year is a record low, though a drop-off to some degree was to be expected. Be careful jumping to conclusions though, as the sharp drop simply balances the surge we saw in the two prior months. It will really take a couple of months from here for this data to stabilize before we can reasonably assess whether or not it was the stimulus/tax break that was propping up the new home market.

New Homes For-Sale (Black)

The good news/bad news is, the number of new homes for sale also dropped to record lows…. to 213K total. Was the new home sales figure just low because of a lack of new homes available? Doubtful, though it’s an interesting question to debate. Most likely, builders saw the writing on the wall and cooled off on the new construction before the tax credit expired. Either way, the trend remains weak, and that bodes poorly for builders.

Average Home Price (Red)

The one bright spot in last month’s mess is that the average price of a sold new home actually cranked up to $263K. That’s hardly a trend though - it’s actually right in the middle of the price range we’ve observed since mid-2008. Still, a higher price suggests a modest amount of buy-willingness and credit-availability.

Existing Home Sales (Blue)

It’s easy to forget that new homes sales only account for about 10% (on average) of the total “real estate for sale” market. Existing home sales fell last month too, but barely, to 5.6 million units - down from 5.79 million units in April. Given that this is the bulk of the real estate market, this is the argument that the bulls need to cite when making their case…..  the real estate market isn’t nearly as bad as new home sales suggests, as new homes are a tiny part of the whole picture.

Total Real Estate Inventory (Grey)

A surge in shadow inventory? You wouldn’t know it from last month’s total real estate inventory - it fell from 4.04 million units to 3.89 million. Perhaps it’s a case where all the pending phantom inventory real estate owners pulled their listing - or decided not to list in the first place - in response to the looming end to the tax credit. That’s the lesser-likely scenario though. Instead, this is apt to indicate an intention to not sell anytime soon, or to not sell at all.  Either way, if this becomes a trend, it will only help home prices and new home sales. That’s a big ‘if’ though.

The media isn’t giving you this kind of view of the data. Sign up for the free Micro Cap Press newsletter today, and get these charts on a regular basis along with our market commentary and sector/stock picks.

With each passing day, it seems like the market continues to stumble towards the double-dip recession (and accompanying double-dip bear market) that was merely an academic talking point a few weeks ago. While the nastiest and most severe wave of the recession phase is - we believe - behind us, another round of weakness is nothing you’ll want to just wait out.

So what’s a ‘long-only’ investor to do, if he/she doesn’t want to tiptoe into the dangerous world of inverse ETFs or the tricky world of options and futures? There is some good news now that we couldn’t have talked about in 2008…. pockets of strength, where stocks seem poised to not only resist a bearish tide, but ready to keep climbing that wall of adversity.  

While it will still take laser-precise navigation to work around the market’s land mines, here are few defensive picks that may just save your portfolio in the event of a double-dip…. or even just tepidness.

Drink Up

It probably should be cyclical, but beer and spirits have proven to be pretty darn recession-resistant…. if not from a bar & restaurant perspective, at least from the brewers’ and distillers’ perspective.

Take Molson Coors (NYSE:TAP) for instance - it barely flinched when the economy was at its worst in 2008, only seeing it annual earnings (per share) dip from $2.79 in 2007, to $2.77 in 2008. And, it caught up real quick with 2009’s earnings of $3.80 per share.  The same ‘barely down/easily up‘ action applies to Boston Beer Company (NYSE:SAM). In good or bad times, the companies did ok.

The ‘best of breed’ from the group, however, isn’t a brewer at all though… it’s a distiller - Constellation Brands (NYSE:STZ). It also survived the recession with flying colors, watching its operating earnings fall from $1.67 in 2007 to $1.45 in 2008. In 2009, the company was back in full swing with an operating EPS of $1.60. 2010 is promising to be even better.

Bottom line? Consumers drink to celebrate when times are good, and apparently drink to ease the pain when times are tough.

Ya’ Gotta’ Eat

The average stock in the food distributor group is up 36.3% for the last 12 months, and as part of the consumer staples business, the demand for its products remains pretty consistent in any economic environment.

The ideal food play is probably Sysco Corp. (NYSE: SYY). It’s got P/E ratios consistently in the mid-teens, which isn’t stellar, but what it lacks in value it more than makes up for with reliable performance from its stock, managing to shrug off any of the market’s curve balls that cause other stocks to whiff.

Broadcasting

There’s just something about a recurring revenue model.

The easy play here is Comcast Corp. (Nasdaq: CMCSA), with a beta of 0.91 (the lack of volatility mostly stems from the lack of nasty pullbacks), four straight quarters of topped estimates (in fact, we’ve seen three straight years of top and bottom line increases), and a stock that’s still trucking. This year’s strong interest in World Cup Soccer - thank you France and inconsistent reffing - can only help.

The Other Way to Avoid the U.S. Market’s Problems

While all markets have been volatile, the developed markets of the U.S. and its economic peers/partners have been far more volatile than emerging markets. Go there (proverbially), and you may find less-stressful equities.

Oh, you may have to think way outside the box…. way outside it, in fact, given how tough it can be to find a stock that isn’t closely-linked to the United States or its trade partners (or its consumers). They are out there though, and more importantly, their stocks are gaining.

Take Compania Cervecerias Unidas SA (NYSE: CCU) for example. Another brewer? Yes - it’s the best of both strategies.

Cervecerias Unidas errantly lacks a decent analyst following. If the quality of coverage were better, you would know that it’s spending over $100 million to expand its capacity in 2010. You might also know that CCU didn’t tumble like the rest of the market did in May, and it has already recovered what little ground was lost.

Or there’s Telus Corp. (NYSE: TU) - the Canadian telco with a big dividend yield of 5.6%, and a stock chart that’s shrugged off the surrounding weakness to gain 14% this year. Momentum can be huge in a nasty environment.

Or, how about an obscure Brazilian utility stock that posted 82% increase in last quarter’s earnings after a 65% increase in the prior quarter’s earnings? That’s CPFL Energia (NYSE:CPL), which snapped a five-quarter streak of declining profits two quarters ago.

The 7.0% dividend yield or so is solid enough on its own, but when you factor in that Brazil one of the fastest growing countries in the world and wasn’t hit as hard as the rest of the world was in the recession (meaning its recovery is taking shape much faster and firmer than in other countries), CPFL Energia looks even more attractive. Earnings growth should continue to climb firmly, as the energy needs of Brazil’s brisk economy swell at a much faster rate than in the U.S., Europe, or Asia.

More Than One Thing In Common

These stocks weren’t picked out of thin air, as you probably realize. What you may not realize, however, is that they were not picked simply based on fundamentals - each of them have also been consistent winners of late, and part of groups that have also been consistent winners or survivors….. the tailwind that means far more than most investors recognize.

See, a consistency in gains - or lack thereof - can make a surprising difference between winning and losing in the long haul.

Certainly that’s not to imply volatile stocks can’t or won’t outperform the market - they can, and sometimes do. It’s just that volatile stocks are tough to own because they have a way of mentally slinging investors around. Buying at highs and selling at lows are just two of the likely headaches fostered by a wild equity holding. Remember though, it takes a 100% gain to recoup a 50% dip in your portfolio. So, just being able to hold a stock (or several of them) through a rough patch means you’re ahead of the game at the point in time when stocks really start to shine again. The ones mentioned are ideal ways to employ that tactic.

Looking for more great stock ideas that the mainstream media will never let you know about? Don’t let them pick crappy stocks for you just because it makes for good news stories - subscribe to the free Micro Cap Press newsletter today, and start getting these ideas on a regular basis.

We’ve been talking about if for a while now, but the evidence has really started to mount over the last few days. What’s that? Sector rotation, where yesterday’s leaders are replaced by tomorrow’s leaders.

Though it’s an ongoing (and trade-worthy) phenomenon, new leaders become readily apparent during and immediately after corrections like the one we went through last month. The hot spots over the thirteen months prior to that point look nothing like the leaders we’ve seen since the May 20th bottom. (And yes, we know the market’s been lower since then, but May 20th - so far - was the sentiment-capitulatory bottom.)

Take a look at what led and lagged between the March-2009 bottom and the April-2010 top…

… and now compare that to the leaders since the May 20th bottom….

Most of the leaders are now laggards, and most of the laggards are now leaders. Basic materials is an exception, though not a surprising one given that gold and other precious metals fall into that category. Had it not been for gold, the basic materials sector wouldn’t have been quite as impressive for the last few weeks (though still a better-than-average performer).

If you’re more of a numbers person, or want the details, we’ve got those too. Again though, the leadership shake-up is evident.

So is this volatility, or a trend?

Given the environment and length of time that we’ve watched these charts unfold, this can’t really be chalked up to volatility. Investors were thinking aggressively a year ago, explaining why they favored the sectors they did then. With the fear of a double-dip recession as a backdrop now though, investors are understandably looking at (and for) safer areas. That kind of mentality isn’t quick to fade away either, so, these are ‘trends’ until further notice. As such, these charts should be somewhere in the thought process as you select new stocks going forward.

You could live to be a million years old and you’d never see this kind of chart or advice on CNBC, or read about it in the Wall Street Journal…. despite the fact it’s a huge help to your portfolio. Stop missing out on the good stuff - subscribe to the free Micro Cap Press newsletter today.

Think Monday’s late-in-the-session turnaround (for the worse) is a hint of something bigger and more bearish on the way? Take a closer look…. the only thing bearish about the day was the closing price for the S&P 500, and the way stocks ended the day. Everything else was actually bullish, at least by a little.

Say what?

We know you’re probably as sick of reading about the breadth and depth chart as we are of writing about it. It IS slowly giving us the right clues though, and given its history of being a leading indicator, we need to stick with it until it ’signals’, and the market follows suit, or fails miserably; we expect the former.

In any case, we noticed something odd when we were updating yesterday’s breadth and depth chart for the NYSE as well as the NASDAQ.  Take a look at the actual raw data for the day, found in the data window.

Here’s the NYSE’s…

…. and here’s the NASDAQ’s…

You’re not crazy - we saw more advancers than decliners, and more bullish volume than bearish volume. That’s not totally impossible to believe for the NASDAQ, which managed to close a hair higher for the day (+0.02%), but the S&P 500 - mostly NYSE-listed stocks - actually closed in the red by 0.18%. Yet, we saw many more advancers than decliners, and we saw a little more bullish volume than bearish volume.

How does that happen? The most common explanation - and the one for yesterday’s oddity - is just that a few mega-caps ruined it for everyone. Make no mistake though…. the bigger undertow is still bullish.

None of this is to say the market can’t or absolutely won’t implode today or anytime in the immediate future. It’s something the bearish pundits need to explain and counter though, as a few of them have explicitly cited a lack of bullish breadth as the reason the market can’t get going. Respectfully, we ask what market they’re looking at? The breadth trend tipped in favor of the bulls last week…. and that’s not an opinion - that’s a numerical fact. And now, we’re still seeing bullish breadth AND depth on a bearish day?

The bulls ARE hanging in the there, and they DO want to get on their proverbial horse.

As always, prepare for the worst, but be ready for the rally nobody else seems to expect… the bears are still slowly weakening, regardless of what anybody says.

The mainstream media would never in a million years look at - let alone explain - a chart like this, despite the fact that it’s a stunningly effective timing tool. Their loss is your gain though… sign up for the free Micro Cap Press newsletter today, and we’ll start sending you this chart and all the other timing tools on a weekly basis.  

Last week’s economic news was not only minimal, what little we did get sent mixed messages.

Take consumer credit for example. Experts were looking for a $2 billion contraction in credit, but we actually saw a $1 billion increase in total credit levels. That’s good news, pointing to a better-equipped consumer. But.…

Retail sales were expected to be slightly higher, yet we ended up seeing a 1.1% decline in total retail sales last month. Inventories (wholesale as well as business) were both expected to increase by 0.7%, yet both were only up 0.4%. The Michigan Sentiment Index, on the other hand, still topped expectations with an increase to 75.5.

On the jobs front (which was the prompt for Thursday’s and Friday’s bullishness), new claims were down a hair, to 456K, while continuing claims plunged to 4462K, from 4717K. Analysts were expecting to see 4600K. Even so, last week’s better numbers may be as meaningless as the weaker numbers from a few weeks ago. Take a look at chart of both below….. is there actually a negative or positive (net) trend that should be driving decision-making, or are investors making something out of nothing?

The reality is, continuing claims are not only sinking again, they’re on the verge of new multi-year lows. Expired benefits? That may be part of it. For some reason though, pessimists are certain there’s no way anyone could actually be finding jobs again…. even though other evidence points to the notion that they are. We’ll take a stand in the middle, and assume the picture isn’t as bleak as some want to believe, but also not as rosy as the renewed downtrend seems to suggest.

As for new/initial claims, “not higher” is good, but the number isn’t sinking either. The floor seems to be 445K. Anything under that would be a cause for celebration. Anything less, well…..

One thing to bear in mind about the nonfarm payroll data trend on the chart below - the bulk of the recent improvement is due to government census hiring. On the other hand, non-government net hiring has still turned positive, even if tepid…. something the gloom and doomers tend to gloss over (citing ’still not strong enough’ as the understandable reason for the dismissal).

As for the current week, a lot more is in store beginning on Tuesday, but the fireworks really start on Wednesday.

Housing starts, building permits, capacity utilization, and industrial production are all on tap for Wednesday morning. The former two will point to health on the real estate front, while the latter two will point to health on the industrial/manufacturing front. And, all four are heavy hitters in terms of being able to move the market. Economists expect tepid changes - if any - across the board though.

Here’s the latest update on the two housing/real estate data sets, plus all the other related trends.

And here’s a look at capacity utilization and productivity….

Remember, we’re plotting the actual production index, and not the percent changes you’ll hear the media discuss. The plotted capacity utilization figure, of course, is a percentage.

As always, new and ongoing jobless claims are out on Thursday. Economists are basically looking for stability there too.  Both charts were already posted above.

Leading indicators and the Philadelphia Fed’s index are due on Thursday; the pros are mixed about what to expect, but aren’t looking for much change in either direction.

The other big announcements for the coming week will be Wednesday’s producer inflation, and Thursday’s consumer inflation figures. Remember, the concern here has turned from the potential for too much inflation (thanks to rock-bottom interest rates) to not enough inflation (or even deflation), stemming from an alarmingly weak recovery. So far, both sides of the worry coin have proven irrelevant, as the economy has walked that inflation tightrope quite well. Still, it remains worth watching. Here’s that chart.

And, here’s the whole calendar for the week. We’ve got a lot going on, and like we said, most of it has the potential to move stocks higher and/or lower.

You’re not getting this kind of needed perspective on economic charts from the mainstream media.  Sign up for the free Micro Cap Press newsletter today, and start getting the proper commentary and these long-term trends…. not the short-term nonsense most news outlets create from it.

Though Thursday’s strength isn’t a big surprise to us (we’ve been bullish based on the stunning TRIN reading for a while), the ridiculous 3.0% run for the day puts the market right back into the same fire it’s been jumping into for several days now - overbought, and a hair away from a salvo of profit-taking.

We’ve mentioned it before, but I bears repeating now…. pacing is everything. If it were 1999, or 2007, a 3% pop would be nothing - easily followed the next day by more buying. This is mid-2010, and though the Micro Cap Press analytical staff believes we’re still in a bull market, that’s not a widely-held opinion. And, if the bulk of investors think we’re in a bear market, we may as well be in one…. their behaviors will stifle the market to the point where they create the very bear market they fear.

That’s the long way of saying there’s a good chance traders will start taking profits after the 3% runup. If it were just 1% or so, it wouldn’t set up that kind of selling potential. In a tentative environment like this one though, a 3% surge a big liability.

Only Friday will tell us what investors are really thinking, though heading into the weekend will make it even tougher for the bulls.

In any case, we wanted update you - once again - on the breadth and depth charts we’ve been monitoring for quite some time now. Things turned for the better on Thursday.

In simplest terms, even though the total volume for Friday was just average (especially considering the size of the jump), we saw bullish volume come in well above the recent average, while bearish volume came in well below the recent average. The same goes for breadth…. the number of advancers on Thursday was well above the recent norm, while the number of declines was well under the recent average.

Here’s a chart of that data for the NASDAQ, though the NYSE’s (with the S&P 500 Index) looks pretty much the same. Notice how the bullish moving average lines (green) ‘curled higher, as the bearish averages (red) ‘curled’ lower.

Now, as we’ve described and looked at before, what we really want to see here are crosses of those moving averages as a hint that the true breadth and depth trend has changed from bearish to bullish. We don’t have that yet, but we are visibly closer. Here’s the overlaid chart.

Bear in mind that, as is the case with any moving average, this is a lagging indicator. That can be advantageous, or disadvantageous (or both) depending on the situation. Either way, we don’t have the crossovers we want to see yet. But, we’re still actually bulls at this point in time. We’ll just be more bullish when/if those crosses are made.

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Though it wasn’t our plan to post a sector, style, and market cap update this soon after Wednesday’s newsletter, a wild - and bullish - ride on Thursday has pretty much necessitated it.

Don’t misunderstand…. one day doesn’t make a trend. On the flipside, all trends begin with the one ‘first’ day. So, it’s not wrong to start digging.

As you may recall from Wednesday, we specifically made the point that telecom, utilities, staples, and (probably) energy were testing the waters as new leaders for the revival of the bull market. In some ways we saw more evidence of this on Thursday, and in some ways not.

Energy led the way with the biggest gains on Thursday, up 4.9%. Our other three sector picks all scored in the lower half (of 11 sectors, plus gold). However, Our four sector picks are still the leaders for the last five trading days, and with the exception of gold, are the leaders for the last two weeks. And bear in mind, those sectors are still ahead for those timeframes despite Thursday’s sub-par results.

Like we said, one day isn’t enough time to make the call, but we may need to start looking at this on a daily basis.

Here’s the performance chart of all the major sectors, going back to April 26th…. the first day of the meltdown.

And, here’s the raw data.

As for the style and market cap performance, we acknowledged this was a much fuzzier picture. However, based on what we could see, it seemed as if large caps - value as well as growth - were performing better than average, while small and micro caps (small cap value in particular) were underperforming. On Thursday, we pretty much saw the exact opposite…. large caps lagged, and small cap value raced. We reiterate though, this is still not enough data to jump to any conclusions.

Here’s the cap/style performance chart since April 26th.

And, here’s the raw data. As was the case with the sectors, notice that yesterday’s leaders aren’t necessarily the leaders for slightly-longer timeframes.

Even though this is the kind of data you need, this isn’t the kind of data you’re getting from the media. Sign up for the free Micro Cap Press newsletter today, and start getting this kind of insight on a regular basis. Your portfolio will thank you.

Over the last few weeks we’ve introduced a variety of ways to use breadth and depth to spot the market’s true undertow (starting on March 25th). Those lessons culminated in the unveiling of our usage of the Arms Index (or TRIN) back on April 2nd. In fact, by May 17th, the TRIN indicator clearly showed we were getting close to a major bottom (if not there already).

Needless to say, the market doesn’t appear to have hit bottom yet despite the oversold signal the Arms Index gave us.

So the breadth/depth comparison tool failed? Well, technically, yes, but not for the reason you think. In fact, the reason the TRIN tool failed this time around is not only telling, it’s stunning.

Our interpretation of the Arms Index moving averages [remember, we look at three averages for three timeframes - short-term, long-term, and intermediate-term] is mostly based on extremes… “how much more can the market take?”, as indicated by how high or low the TRIN averages are.

For instance, the short-term, 10-day moving average of the Arms Index tends to peak around 1.35, with a short-term bounce from the market starting around the same time.  The intermediate-term (20-day) moving average of the NYSE’s TRIN data tends to bottom around 0.90, usually when the market starts to roll over for a few weeks. It’s not fool-proof, but this interpretation is accurate and actionable about 75% of the time.

So what happened in late May? Something we’ve never seen before….. literally.

Rather than peak at their extreme levels as they have the vast majority of the time over the last couple of decades, all three TRIN moving averages shot to values we’ve never seen before (not even in late 2008 or late 2002, when things wee just plan awful, and bottoms were being made). Take a look.

While anybody can look at the chart and see how this first-time-ever event materialized, what investors may not recognize is just how incredible this event is. THIS IS THE MOST PERSISTENTLY UNBALANCED BREADTH AND DEPTH TREND WE’VE EVER SEEN.

What does it all mean? In this case, it wouldn’t be accurate to say the market is saying one thing and doing another. It’s more a case of saying one thing very loudly, and then doing the same, but very quietly. Over the last few weeks, it was a stunning level of bearish volume (versus bullish volume) that pushed the Arms Index readings so high.

It still doesn’t jive though, and it’s an imbalance that will still have to work its way out somehow.

Is that bearish, or bullish though? Ultimately it’s more bullish than bearish. Given the completely skewed breadth/depth balance though, it’s clear that we’re in uncharted territory….. technically as well as psychologically.  Treading lightly is the bare minimum at this point.

In any case, the underlying principles here are still the same - when the TRIN moving averages start to point lower (even from these lofty levels) that will be bullish for stocks. And, given the wildly-high TRIN reading we’re sitting on, such a rebound could become a bullish powder keg pretty quickly. That’s the last thing anybody expects now. The last thing anybody expected two weeks ago was a tumble that would shove breadth and depth levels to new records, but we got that with no problem either.

No matter what your interpretation is, just know that this breadth/depth imbalance is a once-in-a-lifetime condition, and is either really bullish, or the end of the world.

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