Yesterday, the market came out of the gate with a fair amount of gusto, but it was clear that fence-sitters weren’t going to chase at this point. But buy-on dippers zeroed in on Energy (XLE) and Financials (XLF). Cyclical sectors generally act better.

On the Heat Map, there is not a lot of deep red, but not a lot of green, either.

Keep an eye on the U.S. Dollar (USDX) – it’s trading below the channel. Getting the dollar down against other currencies is a big key to a sustained rally

I’m also watching the CBOE Market Volatility (VIX) Index, which slipped under 20 before clawing higher into the close. A move to 18 or lower would probably be associated with a major pop in stocks.

Shooting Star

The market pop is due for consolidation, which we welcome as a test of this rebound. Yesterday, the S&P 500 closed with a ‘shooting star’ Hammer Candle pattern, which is typically bearish. If there is more pressure, I think it’s back to that area between 4150 and 4100, where the index fills a large gap.

Backing and filling is fine for the market; while that happens, I’d like to see market breadth continue to improve – especially more new highs than lows.

Portfolio Approach

We took profits in a position in Technology yesterday in our Hotline model portfolio.

Today’s Session

The market edged a little higher on import price results for July:

• M/M -1.4% consneus-1.0%
• Y/Y +8.8% consensus s+9.5%

A combination of factors, including the strong dollar and declining shipping rates, helped, as well as more stuff flowing out of China.

The session will be determined by inflation data from the Michigan Sentiment reading at 10:00.