Good Morning, Traders. Earnings season in full swing now and the market now seems to be acting "properly", that is most companies meeting or beating and equities moving up. Although yesterday's action was rather lackluster, it was refreshing to see the market not pull back hard after the Fed-inspired move of Tuesday. Dow was up 10.00, S&P ahead by 2.28, and the Nasdaq Composite to the plus side by 14.74. Not bad considering how much we tacked on a day earlier. Breadth was so so, coming in at just under 2:1 positive on the NYSE and same on Nasdaq. Advancers beat decliners handily, however by 777 on the NYSE and 947 on the Nasdaq. Not stellar, but nothing to sneeze at. We'll take it. Banks, Retailers, Drugs and Homebuilders were the only four on the ShadowTrader Core Sector List that didn't advance off of the open.

The recent strength is shown most evidently in the Russell 2000 Index as shown above in the daily chart snapshot. This column does not often talk about the Russell, but the recent price action warrants some commentary. What is most noteworthy in the $RUT above is that its already broken out over April highs. This is a feat that none of the three major averages that we usually discuss have achieved as of yet. This tells us two things about the market at hand. One is the obvious that small cap stocks are continuing to lead the market and are showing relative strength, and the other is that in an environment where small cap (ie: often cheaper and momentum driven stocks) are leading, being highly selective is of the first order. So along with your metals, oils and gaming issues, the chart above shows that one or two more speculative names (do your homework first!) would certainly not hurt. Now you know where to look, the rest is up to you. Get your chart in order first, then go to the sector, then look at fundamentals and make sure all your planets are lined up. Good trading to you all.

Peter Reznicek is the Chief Equity Strategist and a principal of the Prana Fund, a domestic hedge fund, and ShadowTrader, a subsidiary of thinkorswim which provides coaching and education to its clients on both intraday and swing trading of equities. For a free trial to the full version of The Big Picture or to learn about ShadowTrader's other services, visit shadowtrader.net or send an email to preznicek@shadowtrader.net.