I think we’re entering an important time for the market.  We’ve crawled, maybe “sprinted” is a better word, out of the hole the market made for itself in February and early March.  Some of the bank stocks are starting to slow down.  We’ve had a couple of yo-yo days, where stocks have been both up and down a lot.  Yesterday, not only were smaller stocks strong outperformers, but small laggards did a lot of catch-up.  In other words, the patterns that have shaped the market action during the rally seem to be changing, and at a point where a load of selling has occurred in the recent past.

Today may tell us a lot.

Typically, the first surge in a new up market is a mad rush to cover shorts and get money back into stocks.  Buying is relatively indiscriminate, but with a significant tilt toward larger market cap stocks, for no other reason than they can accept large amounts of money.  After that phase, however, buying becomes more focused and new leadership areas emerge.

For us, several questions:

1. are we at that stage now?

2. if we stall at this level of the market, do we have to reverse direction and “test” the early-March low?   

3. what are the new market themes?  In particular, how badly have irresponsible bankers weakened our future economic prospects and out reputation in the world?  and what implications are there for stocks?  has the clueless behavior of Congress in the crisis added to the damage?  (Answers shouldn’t involve any ranting.  The key  issue, I think, is how heavily does one want to be exposed to the US economy in the next year or two:  do we concentrate on American icons, or look past them for niche  names with unique products serving a world market; how seriously do we look at non-US markets, given that the epicenter of banking destruction is the US?)

More on these topics over the weekend.