New Highs

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VECO is trading at new highs today, long before the indexes to say the least. It looks like VECO can make it to approx $42 before hitting the top of the trend channel and needing a breather. It's unlikely it will continue at this trajectory and get there within a week. It's more likely that the speed at which these stocks are climbing will taper off and give way to charts that cling to the yellow line in the center of the channel, moving slowly upwards until a new catalyst comes along.

That catalyst may be another leg down for the broader market, but that remains unknown. The broader market, for the record, is not out of the woods just yet. It remains below its downtrending 50dma, and neither the S&P nor the Dow have taken out their early Feb highs.

What the market does over the next several sessions is critical to helping us determine whether we just completed a healthy 10% correction, or whether we're in the early stages of a larger selloff.

CREE

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The chart of CREE above exemplifies why relative strength is the single most important attribute for a stock to have. When the market was correcting, CREE managed to stay above the moving average. Now that the market is hinting at a possible technical recovery, CREE is off to the races. No doubt it will make new highs LONG before the market itself.

If the market is just gearing up for another leg down, CREE will be able to absorb that plunge most likely without breaking through its moving average or trend channel once again.

VECO shows similar strength, but AIXG has become a weak stock. If AIXG does not begin to show signs of renewed strength, we may have to let it go.

We bought some MRVL today after researching it more thoroughly. The company is posied to experience explosive earnings growth over the next year or two. Having the support of fellow "aggressive growth" investor, Ken Heebner, doesn't hurt either. We like the prospects for the stock, and will more than likely be adding to it so long as it continues to gain popularity among investors. Popularity is the one element that is hardest to quantify, as there is no fancy formula to plug it into. Yet, it has more influence over a stock's future than any other variable.

CREE has certainly caught the attention of the investing public, and we hope to see that interest last for another few quarters, provided it doesn't overheat beforehand. Stocks with this kind of "popularity" run the danger of getting way ahead of themselves, hence our use of trend channels to help us scale into and out of positions in companies based on how close they are to the reality of their earnings potential.

We are now 36% invested, holding CREE, VECO, AIXG and MRVL. Cramer, are we diversified?

Financials

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What better reason to believe that the market is headed lower than charts that look like this? The chart above of Citigroup (C) demonstrates just how fragile the financial sector is at the moment. The odds that Citi breaks support and heads lower are very high. We continue to believe that we'll see a full 10% correction in the market, and perhaps even 15%. This is one of the reasons we sold all of our Ultralong index positions at the end of December. We don't have any reason to believe that the market will continue to drop after completing this modest, healthy correction. We believe that Dow 9,500 (S&P500's 1020) is in line with the reality of the current health of our economy. In an ideal scenario, the market would capitulate in two or three days of massive selling, then have a strong intraday rebound after a panic selloff one morning.

If it unfolds this way, there will be value to be had across the board. We will be backing up the truck on the LED stocks, particulary CREE, which is demonstrating excellent relative strength considering what the broader market is doing. If the market does begin to peel off a few hundred points a day for a few days in a row, it will look like we're headed to Dow 6,500 again. You'll be forced to decide for yourself whether or not this is a healthy correction or another leg down in a very tiring bear market. We're sticking with the "correction" theory, but encourage everyone to do draw their own conclusions.

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