As a rule, you can judge the strength of a market by how well it reacts to bad news. Last week, the S&P 500 backed off 1% in response to the discovery of a terrorist plot based in London, the on-going violence in Lebanon, and the closure of Prudhoe Bay’s oil field. Under the circumstances, we think the market held up quite well – a little like Atlas, shouldering the weight of the world’s worst problems without collapsing.

Of course, this should not surprise you. For some time, our technical indicators have been remarkably positive. Relative strength in the broad market remains good. Speculation remains low, suggesting a lot of cash on the sidelines waiting for the right opportunity. And specialist shorting still lurks at historic lows.

In fact, even when the market rallies these days, the market specialists do very little shorting – a further sign that the specialists see no sell orders on their books. And without sellers, the buyers are in charge. So it’s no wonder the market stays buoyant.

Nonetheless, we refuse to grow complacent. There are a few trouble spots we are keeping our eye on …

LAGGING TRANSPORTS MAKE US DOUBT THE NEXT BULLRead more...