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Testing This Market's Strength

Stocks move sideways in a test of recent market strength. Like Friday, stocks sold off mid-morning, but almost immediately began bouncing back. The major indices have broken into positive territory late in the day. Volume is light.

While techs led the initial selloff, other sectors, including home builders, banks, oil refiners, and TV & newspaper stocks, are holding their gains....in other words, just like Friday, investors are rotating into other sectors.

1) home builders are up double digits due to the better than expected new home sales

2) TV and Newspaper stocks are up on hopes for improved ad revenues

3) Oil refiners are up because spreads between crude oil and gasoline have begun to improve and the outlook is more positive, so some investors are looking to own them with the potential uptick in economic activity.

4) Regional banks are strong, important because many traders spent month with a "go long big banks/short regional banks" trade that was very successful.

This rotation is a modest sign of resiliency.

One issue: The CBOE Volatility Index (VIX) is up 7 percent today; traders note that the force of the rally and the uninterrupted nature of it has a lot of people looking for a pullback.

The first sign of that would be an increase in options activity, which is what the VIX tracks. It measures the price of near in-the-money puts and calls for the S&P 500.

It has been declining almost in a straight line since the March lows, so a 7 percent rise in one day has the attention of traders. On Friday, the VIX closed at its lowest level since September.

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