As of my prior look at the hypothetical ‘sandbox‘ portfolio, I was lamenting how our picks were trailing the broad market’s progress. While we’re only about 2/3 invested - and therefore have 1/3 of the portfolio held as cash - we were far from getting an adequate risk-adjusted return. Well, that changed in the meantime.

As of today our return has started to pull away (for the better) from the broad market. While one day is no reason to celebrate, all major trends start out as minor ones. Plus, we’re not missing out on the rally, so we’re not being forced into or out of trades we don’t really want to make. Here’s the portfolio/S&P 500 comparison since we started tracking both in early June.

On a stock-by-stock basis, the only real disappointment we’re sitting on is PDF Solutions (PDFS), and even that stock seems to have perked up over the last two days. It’s still on notice though; despite being fundamentally ‘worth it’, on a technical basis it’s still got some ground to make up. If it can’t do so, we can’t keep holding it.Here’s the total portfolio, assuming we started with $100,000. (Note that a dividend and some activity we posted prior to the official beginning of this portfolio is the reason for some of the unexplained balances and numbers.)

That being said, several of these picks are now overextended in the short run, and may be pulling back soon. We have no current plans to make defensive exits for any of them though, if that tells you anything about our view of the risk. In fact, we may look for a couple of new additions if the whole market dips in the short-term…. something we posed as a possibility in Saturday’s newsletter.

On the news front, there really hasn’t been much. Several of these names have earnings announcements and/or earnings calls scheduled for the near future though.

Among the other updates we have from our companies:

• Core-Mark is buying assets of Finkle Distributors
• LeBarge won another contract, this one worth $4.9 million
• TELUS will redeem its 8% notes (6/1/11) early

If you want to follow the sandbox portfolio’s buys and sells (and ’stand over our shoulder’ as we make decisions and execute strategies), sign up for the free Micro Cap Press newsletter today.

Just for the record, the bulls are still winning the war. In fact, the bears have been struggling to even win an occasional battle of late….. though reinforcements are on the way.

Since we opened the breadth/depth can of worms a few months ago - and since it’s been bearing fruit - it’s time to update our bullish/bearish trend comparisons so you can see what the market’s true undertow is. Of course, there’s really not much of one right now, though at least what little there is happens to be a bullish one.

Let’s start with the S&P 500 by comparing it to the NYSE’s bullish breadth and depth. The convention is the same as it has been - we want to see average bullish volume ‘trend’ above the average bearish volume (market depth), and we want to see advancers ‘trend’ above the decliners (market breadth). Those ‘trends’ are represented by moving averages of all that data; green is bullish, while red is bearish.

As you can see for the NYSE’s breadth and depth, we’re not seeing much of a decisive trend either way, though the scales seem to be starting to tip in favor of the bulls over the last couple of weeks. Take a look [and our apologies if you’re color blind].

Before you start to celebrate though, we’ll point out the concerning chart aspect we mentioned in Saturday’s newsletter… the S&P 500’s upper Bollinger band is dead ahead, at 1135. If there’s going to be trouble for the rally anywhere around here, it’s at that mark. That’s not a bearish call - just something we all need to be aware of and ready for.

We won’t dive into the whole discussion for the NASDAQ; it’s pretty much the same as the S&P 500’s. We’ll just show you the equivalent chart to verify the claim. We’ll only add that the NASDAQ Composite’s upper Bollinger band is a little further away than the S&P 500’s. Take a look, but keep reading for the really good stuff. (Or, click here of the breadth and depth analysis is new for you.)

While the breadth (advance/decline) comparisons and the depth (volume) comparisons aren’t all that conclusive in the grand scheme of things right now, as a whole, the market remains more oversold - and more ripe for bullishness - than not.

How can we say that? The Arms Index (or TRIN) says so.

We can’t dive all the way back into the “what it is” discussion for TRIN, but we can say it’s a comparison of breadth to depth. The idea is that breadth and depth should be equally bullish or equally bearish in order to expect a trend to be sustained. To be clear, they can both be at either extreme end of the bull/bear spectrum, but as long as they’re at the same extreme spot on the spectrum, then balance is achieved and that trend can be sustained. It’s when the imbalance swells up that the Arms Index or TRIN says a reversal is nigh.

Clear as mud? Great. Perhaps the chart will make it clear.

We look at the TRIN data in three timeframes….. short-term, long-term, and intermediate-term. Regardless of the timeframe, an oversold market is marked by a TRIN reading that is ‘too high’, while an overbought market us indicated by a TRIN reading that is ‘too low’. [The method for spotting ‘too high’ and ‘too low’ is well beyond this discussion - you’ll just have to trust us that we know how to spot it. Click here if you want all the details though.]

Well, guess what ….despite the recent rally, the market is still oversold in all three timeframes. Take a look at out chart and you’ll see. All three NYSE Arms Index reading are - or are back - above their nominal ranges. Pay special attention to how all three timeframes’ lines peaked on the very same day the market hit bottom in early July.

There’s something else to note about this chart, however, that should make you not only a believer in TRIN-based trading strategies, but also a believer in understanding that trading requires the proper navigation of multiple trends in multiple timeframes.

See the short-term Arms Index line (red) in the middle of the three TRIN plots? As you can see, it made a sharp, V-shaped bottom right at the S&P 500’s short-term tops from June 22nd and July 15th. They’re marked in yellow.

With proper observation or an enveloping indicator (like Bollinger bands or a moving average envelope), it would have been easy to recognize that the short-term TRIN reading said stocks were overbought, and that the market was ripe for a brief correction. SIMULTANEOUSLY THOUGH, the intermediate and long-term TRIN readings said stocks were still oversold. And, all three timeframes were ‘right’.

While our oversold/overbought settings and Arms Index averages are proprietary, they’re not complicated - you could closely mirror them for yourself. Or, it would be even easier to simply sign up for the free Micro Cap Press newsletter and let us update these charts for you. We share them whenever anything action-worthy pops up.

Is July’s drop in consumer confidence a reason for panic? Is it really not that big of a deal, or did the market not freak out enough? After all, stocks broke even for the day despite this confidence dip being the second month ion a row the Conference Board’s optimism gauge fell….. news that would have sent the market careening if it were still 2009.

Believe it or not, as optimistic as the Micro Cap Press analytical staff is, this is a case where investors weren’t rattled enough; the buying in the face of what should be worrisome (though not panic-inducing) news didn’t rattle investors to the point one would expect. Why’s that? Too much confidence - or bullishness despite a lack of confidence in this case - is a recipe for disaster; stocks climb walls of worry.

That said, we will take our usual step back and look at the bigger picture trend. The fact is, the long-term confidence trend is still one of rising optimism; two tough months can’t and shouldn’t undo that. A third one might, however.

Just to put it all in a visual perspective, we’ve plotted a long-term (20 year) chart of the S&P 500 against the Conference Board’s consumer confidence number as well as the comparable Michigan Sentiment Index.

The Michigan version of the number fell last month as well, but this month’s figure isn’t out yet. It will be released on Friday though, and is expected to show a slight rise.

Either way, when this ‘bigger picture’ perspective is adopted, it becomes clear the recent volatility is nothing - past recessions and bear markets are associated with much bigger dips in confidence than this one. In the short run the lack of alarm my be trouble, but in the long run, this is something that shouldn’t break the bull market or the economic expansion. Like we said above though, a third move lower for either of these confidence measures will force investors to start making tough decisions.

The mainstream media failed once again to put this information into this perspective, focusing only on this month, last month, and what it ’should’ mean for the market. You can’t afford to listen to incomplete or misguided news any longer. Sign up for  the free Micro Cap Press newsletter today, and start getting the rest of the story (the part you need).

With all the major data being updated as of this week, we can go ahead and look once again at the bigger real estate picture (as opposed to just one data nugget). While the slant has remained mostly a pessimistic one, there are a few encouraging hints popping up. In total though, the real estate environment would probably be graded a ‘C’. Take a look; the chart - which is the most telling - appears all the way at the bottom.

Permits: Single-family dwelling permit requests moved a hair lower, from 436K to 421K. Total permits (which includes multi-family housing) actually improved from 574K in May to 586K in June.

Starts: Single-family home starts came in at 454K, or a hair higher than 451K from a month earlier. June’s total building starts was 549K, which was a little lower than the 578K starts from May.

Home Sales: Existing home sales fell from 5.66 million to 5.37 million between May and June. New home sales (which is a small fraction of the whole real estate market) jumped from May’s record low pace of 267K to an annual rate of 330K in June.

Inventory for sale: The National Association of Realtors reports that the total number of real estate units on the market edged up slightly in June, from 3.89 million to 3.99 million. The total number of new homes for sale at the end of June rolled in at a record low of 210K; that was a tad lower than May’s figure of 213K.

Average new home price: Though it only measures new home sales, one has to assume that if new home prices are dropping - and they are - then existing home sales prices are also dropping in order to remain competitive with new homes. In any case, the average new home sold in June cost $242.9K. That was down from May’s $263.4K, but more importantly, is actually a multi-year low. It’s not clear to what degree the lower price reflects lower prices per square foot, or to what degree builders are opting to build smaller (and inherently lower priced) homes.  Either way, lower home prices may be a big part of the reason for the few other bright spots in the above data.

The mainstream media is never going to give you this kind of ‘bigger picture’ view…. of anything. Subscribe to the Micro Cap Press newsletter today, and start getting this kind of insight delivered straight to your inbox. 

Are you one of the folks who thinks the economy is slowing down? Not that there’s not some evidence to that end, but to be fair, there’s plenty of evidence to the contrary. One such piece of evidence is railroad freight activity in the United States (as well as in Canada).

In June, the total rail traffic - intermodal plus carloads - in the United States averaged a total of 515,000 units per week, which is just 1.3% below May’s total levels. It’s still easily more than 10% above June-2009’s levels.

And in the meantime, we’ve actually seen the weekly rail numbers jump back to the strong levels that were so encouraging for the first half of the year’s; last week’s 227,000 intermodal units and the 282,000 carloads sent within the United States were right in line with the recent average. The chart speaks for itself.

The third piece of data on the rail shipping chart is cumulative ‘ton miles’ figure. As it suggests, trains cars (all types) multiplied by distance delivered equals a ton-mile…. the more, the better. Last week’s 30.8 ton-miles is just a fraction lower than the four month average, which has barely even budged that whole time.

No, rail freight demand isn’t waning, whether one wants to believe it or not. Canada’s rail market has remained just as stable.

That being said, were it just railroad activity showing reason for optimism, it might be easy to dismiss it as an anomaly. Trucking demand has remained just as firm though. In fact, according to the Cass Report, total shipping volume as well as total freight expenditures have actually trended higher each month this year including a June increase - well after the point where most investors thought the double-dip recession had begun. (Or if it has begun, then this shipping demand is an outright miracle).

While the earnings numbers for the prior quarter don’t guarantee the same success in the next (or current) quarter, they certainly aren’t meaningless either. Check out some of the recent reports from the rail as well as the trucking industry:

• Werner Enterprises (WERN) generated a 65% increase in last quarter’s earnings
• Knight Transportation (KNX) posted a 26% increase in last quarter’s earnings.
• J.B. Hunt (JBHT) posted earnings of $0.40 per share last week, topping last year’s $0.23. Intermodal revenue was higher by 24%, on a 19% increase in volume.
• Union Pacific (UNP) announced record-breaking earnings of $1.40 per share, beating Wall Street’s estimate of $1.21. All six of its business segments (automotive, intermodal, chemicals, agricultural, etc.) saw improved revenue and earnings.
• Canadian National Railway (CNI) drove a 38% improvement of the prior second quarter’s per-share profit with income of $1.13. Analysts had only forecasted income of $0.99.
• CSX Corp. (CSX) netted $1.07 per share, topping an anticipated $0.98. Revenue was up 22%; volume increased by 13%.

As for what lies ahead, most of the companies mentioned they were optimistic about future growth. Even the ones that we’re looking for a way to contain expectations had to concede there was - for one reason or another - something positive ahead.

For instance, Werner’s spokespeople commented “the improvement in the freight market has more to do with the failure of other trucking companies rather than rising demand”, which is unfortunate for the failed companies, but ultimately of benefit to Werner.

J.B. Hunt’s President Kirk Thompson, President said “Demand for transportation services has increased fairly dramatically as we have emerged from a multi-year freight recession… Across all segments demand was solid throughout the quarter with no evidence of renewed weakness. Shippers increasingly have exhibited concern about the supply/demand imbalance as their ability to secure adequate capacity has become more difficult.”

Werner especially cited a lack of drivers and a lack of accessible capacity as challenges; both point to a growing - not shrinking - demand that will ultimately dive prices upward, as the supply can’t grow as fast.

On the railroad side of the table, Canadian National nor any of the other rail outfits has to say a thing about the supply/demand dynamic that’s causing earnings to grow. The fact that Canadian National raised 2010’s earnings guidance (again) to a full 25% increase over 2009’s net income says it all.

It’s time for the long-termers to start looking at these stocks; the business is there regardless of whether or not the economy is supposed to be headed towards a recession again. And if we do skip the double-dip, the sky’s the limit for truckers and railroads.The mainstream media would never shoot this straight with you, or get this in depth (despite the fact that this is the kind of information investors need). Stop missing out -subscribe to the free Micro Cap Press newsletter today.

It may not be pretty, but at least it’s not bearish either. What’s that? While the market was largely distracted with earnings news last week - good at first, and then turning bad later in the week - we actually were dished out a ton of important economic news. Though we don’t have time and space to take detailed looks at all of it, we do want to examine a couple of the most important items…. industrial activity, and unemployment. Both gave us reason for encouragement, rather than reason for panic.

Let’s start with the unemployment picture. While the actual unemployment rate isn’t in a freefall, it is lower, at 9.5% (versus the peak at 102% from October). That wasn’t the big news from last week though. No, the big news was the fact that new unemployment claims finally fell under the stubborn 440K mark with a move to 429K. That’s the lowest level since mid-2008, and though it’s too soon to call it a trend, it’s not too soon to take notice.

If continuing claims can just break the 4.44 million mark, that would compete the trifecta.

As for industrial activity, our interest lies in two key numbers - capacity utilization, and the industrial productivity index. Both have shown tremendous correlation with the broad markets overall (long-term) direction. Therefore, both are immensely important top us as investors.

Though not by much, the industrial productivity index increased last month; it was the 11th straight improvement. Capacity utilization stayed flat, at 74.1% (but didn’t fall - the 11th straight month of a “not lower” reading).

Like it or not, both suggest the economy is still in growth mode, even if it’s tepid growth. That’s still distinctly different than a contraction though, which is an ultimate omen of a recession. And either way, one month’s worth of data isn’t enough to jump to a conclusion (good or bad).

The mainstream media will never give you this kind of perspective. Sign up for the free Micro Cap Press newsletter today, and start getting these charts (and more) on a regular basis.

Back in April, we made the point that fertilizer companies like Monsanto (MON) and Mosaic (MOS) were suffering largely by their own hand. At the time, the S&P 1500 Fertilizer and Agricultural Index had fallen from a January peak price of 726 to 595 …. an 18% slide. Given that the underlying problems hadn’t changed by that point though (or hadn’t had enough time for any change to take effect), these stocks were still viewed as liabilities - and were apt to keep falling.

Sure enough, the fertilizer/ag chemical continued to tumble, to last week’s low of 422. All told, that was a 42% implosion. The nearby chart of the S&P 1500 tells the tale quite succinctly.

So what’s up with the rebound over the last week and a half? That’s just the sweeping recovery of the entire group, now that the chief problems have been whittled down to non-stifling levels.

As was pointed out in April, fertilizer companies were one of the few materials groups that didn’t adjust their prices lower to reflect a soured economy. Potash, for instance, held above $600/tonne all throughout the spring, summer, and early fall of 2009… the heart of the growing (i.e. big demand) season. Rather than pay ridiculous prices, farmers largely opted to not use fertilizer at all in 2009’s growing season. And why not? Crop yields had been pretty strong even without it.

In other words, the fertilizer companies’ strong-arm tactic backfired. Sales plunged, and profits followed.

Now fast forward to today, and check out the recent chart of potash prices… they’re back around the $300-$400/tonne range, and appear to be stabilizing there.

More importantly, now that fertilizer is actually affordable for farmers again, it’s being used. Sales volumes are up for the fertilizer companies as well; profits will follow. In fact, now that we’ve had one full quarter’s worth of growing season with the newly-lowered potash prices (they fell in the latter part of last year, but by that time the growing season was coming to a close - nobody needed fertilizer then), we can confirm that earnings are on the rise. Indeed, they’re even better than anybody expected. That’s the reason for the sharp rebound in the fertilizer index. Check it out.

• Scotts Miracle-Gro (SMG) topped last quarter’s EPS estimates of $1.46 by earning $1.80.
• CF Industries (CF) earned $1.54 per share in Q1, topped an expected $1.27…. and that wasn’t even a prime growing season yet. Look for $3.14/share in for Q2.
• Potash (POT) posted earnings of $1.47 per share last quarter, versus an expected $1.31.
• Monsanto (MON) beat last quarter’s earnings estimates by a penny (which is considerable, for Monsanto).

And those are just three examples; the rest of the stocks in the industry have - or are expected to - post similar surprises.

Now factor in not just the low forward-looking P/E ratios, but also the trailing P/E ratios (12.8 and 20.4, respectively, which is attractive for a group-wide figure that still carries some dead weight of a few really bad constituents), It’s hard not to understand what the market is excited about….. cheap stocks that are essentially proving they’re worth more than their current prices.

The key to this strength, of course, is longevity - how long will demand persist to drive these results?

According to the International Fertilizer Industry Association, fertilizer usage should grow for several years at an annual pace of about 5%. The need for even-greater yields is still swelling, and farms can’t skip fertilizer indefinitely.

The threat, of course, is that fertilizer prices will sky-rocket again, to the point where nobody’s buying it (and by extension, where nobody’s selling it). That’s a remote possibility though. With a global economy underway, crop prices should remain firm enough to price in modest fluctuations in farming expenses, and given the harsh lessons the fertilizer companies learned - the hard way - in 2009 by holding out for unreasonable prices, fertilizer prices shouldn’t waver too far from current levels for a while.

In other words, there’s stability again… and that’s just what the doctor ordered for these stocks. You can take the recent rebound at face value, as there’s a lot of upside starting to solidify here.

You’re not getting this kind of insight and deep analysis from the media (where snippets and data nuggets are par for the course). If you want real, market-beating information like this, sign up for the free Micro Cap Press newsletter today.

I suppose I can’t complain too much about the recent performance of the ’sandbox’ portfolio. After all, we’re still beating the market since its inception…. even without being 100% invested (we’re about 2/3, stocks, 1/3 cash). Still, given the kind of risk we’re exposed to (lots of small and micro cap stocks in growth arenas), I’d expect more progress. Here’s a look at ‘us’ versus the S&P 500 since we started keeping tabs.

Like I said, beating the market is beating the market, so I’ll take it. We’ve not gotten a fair risk-adjusted return over the last few days though. On the other hand, it’s still too soon to make a sweeping change to the portfolio.

In fact, the only thing I’d really like to do in the near future is add a few trades and get our allocation closer to 80/20 (invested/cash), as I foresee bullishness - though at a slower pace than the prior five days - ahead. The dust needs to settle after such a big advance though [last week was the best weekly gain in over a year, for cryin’ out loud], and traders are rightfully hesitant to plow into stocks with such a big threat of profit-taking looming in the background. Let’s let the market set up a base around here for a few days so the would-be buyers can get comfortable. Then we’ll go shopping.

As for what’s on the radar, I think the fertilizer stocks are quickly becoming must-haves. I’ll post a very clear and compelling reason why later on today. I also think we need to make sure we’ve got some tech and basic materials exposure, although we’ve got plenty of technology already, with AXT Inc., LaBarge, PDF Solutions, Scientific Learning, and SeaChange.

News-wise, there’s surprisingly little from any of our thirteen stocks. Here’s the latest, though some of these headlines are a bit stale.

• Westell: Earnings call to be held on July 22nd.
• LaBarge: Won a $1.2 million contract earlier in the month, after a $3 million contract was awarded in June.
• Shenandoah: Shenandoah is now reselling Virgin Mobile and Boost pre-paid wireless services.
• Transcend Services: Transcend has entered a 27-month transcription and documentation services contract.

Look for the detailed analysis of the fertilizer industry soon, as well as an updated sector-forecast. We’re starting to see some real sector-based leadership, which will play a significant role in which stocks we choose to round out the rest of the sandbox portfolio.

If you’d like to follow the buys and sells of this model portfolio, or follow the thought process and ‘bigger picture’ as it’s navigated through the market’s ebbs and flows, sign up for the free Micro Cap Press newsletter today.

The shortened trading week last week was made even shorter by a minimal amount of economic data. What little we got, however, (and despite the fact that the market’s gain was made in defiance of it), wasn’t particularly great.

The only good news came on the jobs front; new as well as ongoing unemployment claims not only fell, but both came in under expectations.

On the flipside, the ISM services index for June was a tad lower, while May’s wholesale inventories were a little higher than hoped. Worst of all, consumer credit levels sank by a whopping $9.1 billion, versus the expected $3.0 billion plunge. The contraction indicates that the all-important consumer may not be healthy enough to sustain the economic recovery.

Economic Calendar

As for the coming week, much more is in store.

The first biggies are Wednesday’s retail sales figures for June - analysts are looking for flat to slightly lower sales levels. Also that day we’ll be hearing about business inventories. Forecasters are looking for a 0.2% bump for the month of May; it will be interesting to see if those inventory levels follow the lead of the 0.5% increase in May’s wholesale inventories.

Of course, new and ongoing claims will be unveiled on Thursday. Economists are looking for flat numbers on both fronts. Those numbers will pale in comparison to the rest of the numbers we’re getting on Thursday though. On the same day, June’s PPI (producer inflation) will be announced, along with June’s industrial production and capacity utilization.

CPI - or consumer inflation - will be released on Friday, along with the Michigan Sentiment Index.

Why so important? While low interest rates have fostered fears of rampant inflation, we’ve been hearing those worries for months now…. yet never actually seeing it. The PPI and CPI figures will let us know if we’ve dodged the bullet for another month - though that’s becoming the norm.

And as for capacity utilization and industrial production, as we’ve mentioned before, those two data sets are among the few economic numbers that have consistently and reliably been helpful long-term market indicators. While one weak moth for either won’t necessarily mean we’re headed for a double-dip recession, another positive month for both would largely negate most of the recent worry.

Earnings Calendar

As usual, Alcoa kicks things off this earnings season. Though one company alone shouldn’t be a barometer of what’s on the way, even with just this light first week, we’ve got earnings from a wide variety of the market’s companies. This first week may well set the tone for the whole season.

Earnings Calendar

The mainstream media isn’t organizing all the important data into one ‘bigger picture’ for you like this. Sign up for the free Micro Cap Press newsletter today, and start getting the whole story all the time - not just some of the story some of the time. 

Given the overall market environment throughout this shortened trading week (a bullish environment), one would have thought we’d be seeing some more micro caps and penny stocks entering accumulation phases. That wasn’t the case though - we actually saw fewer quantity as well as diminished quality of this week’s high-volume advances compared to last week’s list. Part of that may stem from the broad market’s recovery…. with bigger stocks advancing again, the need for small and micro caps falls.

Regardless, a few penny stocks did show us some budding accumulation. As such, they deserve a closer look. In no particular order….

The Empire Petroleum Corporation (OTC:EMPR) accumulation is pretty straight-forward - EMPR is moving higher on stronger volume, but has plenty of room to run before a headwind is hit. Part of the bounce now is fueled by the fact that the April-May dip was excessive.

Extreme caution is advised with Energas Resources, Inc. (OTC:EGSR), as trading is thin, and volatility is high. That doesn’t change the fact, however, that this penny stock is being accumulated…. and has been for a while.

Yes, there was news behind this buying of Energas Resources shares. Normally that might be a problem, since when the news stops, so too does the buying. This may be a trade-worthy exception though, for two reasons. One, EGSR never rallied out of control to dangerously overbought levels (indeed, it’s been a very well-paced move higher, and is still accelerating). And two, the company has been reliably putting out a string of news to keep the momentum going.

You can’t make it out all that well on the weekly chart of Lantis Laser Inc (OTC:LLSR) below, but this micro cap has made a string of higher lows and higher highs over the last month or so. That’s the good news.

The bad news is - and this is the reason we’re using a weekly chart - it may not matter. In the bigger picture (as in months), Lantis Laser shares are making lower lows and lower highs.

Perhaps this time is different. Perhaps the bullish MACD cross will actually carry LLSR out of the rut. The volume’s certainly not been bad. It’s a question mark though….. yet one worth keeping on your radar, as we may truly be at the tide’s turn. (If not, we may at least get a short-term pop out of it.)

There’s actually news behind the recent buy-in of micro cap Newport Digital Technologies, Inc. (OTC:NPDT) … Donald Danks (tons of solid experience) is now the CEO. Is it really a reason for the stock to stop its multi-month tumble and reverse course higher? Probably not, but this may end up being the needed reversal catalyst all the same. That downtrend was snapped pretty decisively, and now that it has been, progress may be easier to come by again. It is, after all, a pattern we’ve repeatedly seen from Newport Digital.

You’re not going to get this kind of accumulation alerts anywhere else. Sign up for the free Micro Cap Press newsletter today to start getting them on a regular basis (plus much, much more).

While there’s no particularly discernible sector leadership yet (coming off of June 6th’s lows), we do want to post the percent-change comparison of all the major sectors…. if only to verify that lack of budding leadership. That’s not a bad thing; in fact it’s good that all sectors are participating in the rally - it’s a sign of a healthy market. We only want to point out that there’s no real emerging leader yet, to prevent anyone from coming to a conclusion about how to best play this rebound.

Regardless, the sector chart below does tell us one important fact…. most stocks are now back above their June 6th lows.

We’ll continue to post updates of this chart, as any trade-worthy sector leadership should start to become evident soon. And if you’re looking for a reminder of why we make such a big deal of being in the right sector (or out of the wrong one), just go to the June 26th newsletter and review “Three Things Most Investors Do Wrong at Some Point”. Tapping sector rotation trends is one of the most effective and least stressful ways to put some serious alpha into your portfolio.

The mainstream media isn’t giving you this kind of alpha-seeking insight. Stop missing out on the important clues - subscribe to the free Micro Cap Press newsletter today, and this kind of data will be delivered to your inbox weekly. 

Not that we need to jump to conclusions about yesterday’s extreme bullishness (in fact, we shouldn’t…. it was excessive to the point of being dangerous), but take a look at our breadth and depth charts. No surprises that it was bullish on both fronts. The charts, however, also remind us that this is not yet a trend. Indeed, we’ve seen these one-day-wonders unfold - both bearishly and bullishly - of late, but never really go anywhere. Once we see crosses of these moving averages, and assuming they don’t materialize while stocks are well oversold or overbought, then we can feel better about tiptoeing in.

Nevertheless, with the exception of the big gains themselves, everything else was fairly nominal.… sentiment, trading activity, etc. That’s good, as it diminishes the likelihood of a whiplash move that trips up the rebound right as it gets started. Note that we didn’t say it will stave off a pullback altogether.

Anyway, here’s the S&P 500 with the NYSE’s breadth and depth data….

…. and here’s the NASDAQ Composite with the NASDAQ’s breadth and depth data.

Amazingly, the VIX didn’t go nuts (i.e. fall like a rock). This suggests that, despite the outsized gains from the market, investors aren’t already back to unreasonable expectations about the foreseeable future. That’s ultimately a healthy scenario, and will allow more upside movement.

In retrospect, none of this recovery effort should be real surprise. One brush with that lower Bollinger band (50-day, red) was all we needed to see to know that the market had just taken on too much technical damage, and was ripe for a bounce. Although a little wobbly in May, that band line has been the rebound point for every other major pullback since the bull market began early last year.

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In case you were wondering if the recent disruption in the longer-term bull trend was completely without merit, it wasn’t. Though the selloff was/is overblown, it really did look like banks and lenders were going to put the brakes on the economy. How so? Because the TED Spread and the LIBOR-OIS spread inched higher again in May after falling to accommodating levels early last year.

The what spread? The TED Spread and the LIBOR-OIS Spread - two measures of the willingness and ability of lenders to actually make loans…. hopefully to individual and small businesses, but to big corporations as well.

If you want the full-blown explanations, we detailed them both back on March 14th of last year - right as the market was rebounding, and right as both measures had fallen back to pre-recession levels. It wasn’t likely to be a coincidence. (And as you may have surmised, lower is better for both indicators.)

As the charts of the TED Spread as well as the LIBOR-OIS Spread clearly say below though, lenders raised the bar in May. It’s not clear if this was a pre-emptive, defensive measure, or if it was simply a true reflection of underlying lending conditions. It doesn’t really matter though - the slack was tightened.

Since then, the TED Spread has eased back a little, to 37.7, but the LIBOR-OIS Spread has held steady around 0.3. Neither are ‘great’ compared to the prior few months, but both are tolerable…. and operable for borrowers. Take a look, but keep reading.

In retrospect, the market may have simply reacted to the rise of both (or vice versa). Now that investors can see neither one is continuing to advance though, a willingness to be bullish is creeping back into the equity market. Or, given Wednesday’s huge runup, perhaps the word ‘creeping’ is an understatement.

We’ll monitor both on a daily basis, as either are a ‘bigger picture’ barometer of the economy’s true health. Stay tuned for any note-worthy changes.

This is something the mainstream media would never even talk about, let alone explain and detail. Yet, this kind of economic data is the stuff real investors need. Sign up for the free Micro Cap Press newsletter today, and start getting this and other valuable information on a weekly basis.