Welcome back to day two of what's shaping up to be a respectable recovery effort for the market. That's not to say stocks are out of the woods yet, but a big chunk of the lingering doubts from yesterday were wiped away today. On the other hand... Politics to Put Stocks in a Headlock? Basically, stocks rallied today because Fed Chairman Ben Bernanke was pretty adamant that the Federal Reserve would keep on stimulating the economy by buying bonds, which in turns keeps interest rates low. In other words, more of the same. It was odd that anyone could think the Fed would cut back on its stimulus efforts, but apparently somewhere along the way, enough people thought it to make it an issue. It's no longer an issue, however, and that's bullish. A bunch of the media also said Italy's successful bond auction helped buoy stocks... a much needed hint that Italy isn't a complete mess following the country's inconclusive elections. It further suggests the continent may be able to stave off looming economic problems. Frankly though, Italy's troubled elections weren't a ticking time bomb for the whole of Europe, nor will the country's ability to sell bonds single-handedly save the European economy. News writers were just looking for a "cause" to pin to an "effect." Either way, while today's action bolsters the bullish case, it's hardly a guarantee that the bull trend is back for good. First things first. The market advanced 1.3% today, and in so doing has almost fully erased Monday's big blow. Yet, for the same reason Monday's 1.8% was just too steep to last, today's big 1.3% move is also uncomfortably large. Did the bulls just squander their best chance for a long-term breakout by giving folks a reason to take profits now rather than holding onto what they bought? Maybe. The hourly chart of the SPYders (SPY) really tells us a lot about what's happening here. Monday's implosion is pretty clear. So is the meltdown from last Thursday and Friday. The rally between yesterday and today is also crystal clear. What's so striking is how hot or cold these moves were. The market was either soaring or sucking - there's been no in between. But, it's neither sucked nor soared for more than a couple of days in a row. That in itself leaves the door wide open for a pullback to wrap up the week. When you factor in the fact that the market was already starting to pull back later in today's session (we finished the day with a red bar), the likelihood of following up tomorrow with some profit-taking is pretty decent. Add in the way the Dow Jones Industrial Average's rally was halted right at that upper Bollinger band we've been talking about for a few days, and the odds of profit-taking tomorrow are even further raised. The frustrating part about today's action is that had the bulls not gone crazy and overshot, it would have been a great 'building' day. The Dow Jones Industrial Average even moved to new multi-year highs. This was just too much though. That being said, of all the reasons stocks may have a tough time following through with Wednesday's rally, a lack of volume is the biggest. Just to be fair, it's not like volume was pitiful. Given the size and scope of the rally though, it should have been bigger, and definitely not below the recent average volume. If this rally is to last it's going to need more participants, and if today's strength didn't pull 'em in, I don't know what will. It's something we're going to be watching for going forward. Our overall stance remains bullish until proven otherwise, but we'll acknowledge today's action isn't exactly a best-case scenario for stocks. Perhaps t he one big thing working against stocks right now - or at least not working for them - is the sequester that will go into effect on Friday if Washington does nothing in the meantime. Investors are likely to put things on hold beginning tomorrow while waiting to see if the government's budget cuts actually go through (although the buyers sure weren't holding back today). Thing is, lawmakers won't be doing anything about it before then. President Obama will be meeting with some congressional leaders on Friday to about the spending cuts, but they'll be in effect by that time; the psychological damage will be done, even if the cuts themselves are reversed. And frankly, by that time there'd be little point in undoing them, especially given how so much prep-work has been done to prepare for the cuts. In other words, we're not looking for the 2013 portion of sequester to go away. It still remains to be seen what effect that has on the market, though. All too often, the worst-case scenario for the market never comes to pass with these political standoffs. Wall Street just likes to scare, well, everyone into fearing the worst in its effort to keep things as bullish as possible in the near-term. If for some reason investors do freak out regarding the federal government's budget cuts and decide to sell stocks as a result (and bear in mind we're still using the same technical floors for those cues) that's likely to have a snowball effect and send stocks down sharply, well beneath those floors. But, we also think a sharp pullback is going to be short-lived, and ultimately serve as a great entry spot into a bigger-picture uptrend. See, we've just seen this kind of stuff come and go too quickly before, like the Flash Crash from 2010, swine flu, 2011's federal government budget impasse, and 2012's tsunami (and subsequent nuclear reactor crisis) in Japan just to name a few. All those things were supposed to be devastating for stocks when they happened, but all of them were barely even a memory six months later, with stocks rallying quite nicely at the time. Anyway, stick with us. We expect things to get real interesting, real soon. In the meantime.... The ups and downs of the market, the push and pull of global politics, the hot and cold of the media - it's enough to make traders (who are caught in the middle) crazy. The solution for the insanity is the SmallCap Network Elite Opportunity newsletter. Stock picks, market commentary, and just plain old common sense that's surprisingly uncommon is what you can expect as a subscriber to the SCN EO. . Click Here to Learn More and Sign-Up Or, copy and paste the following link in your browser: http://www.smallcapnetwork.com/?vmpd_ckstr[click_track]=SCN+Newsletter&vmpd_ckstr_redirect=/pages/SCNEO/v1/ Still No Signs of Crimped Consumers The saga of retail earnings continues, with five of the companies we've been watching closely scheduled to report last quarter's numbers today. In fact, three of them already have. Dollar Tree (DLTR) topped estimates of $0.99 per share by turning in $1.01, which left last year's $0.80 in the dust. Target (TGT) met estimates of $1.47, which was a tad better than the year-ago figure of $1.45. And, TJX Companies (TJX) beat estimates of $0.81 by a penny... far better than the $0.62 per share it earned in the fourth quarter of 2011. We've yet to hear from JC Penney (JCP) and Limited Brands (LTD), as both of them don't report until after today's closing bell. So far though, results remain decent. For tomorrow, we've got Best Buy (BBY), Barnes & Noble (BKS), Gap (GPS), and Kohl's (KSS). That's going to round out the major retail names we're worried about this week. So far we've not heard much about the potential crimp in consumer spending (that might stem from payroll taxes) being a real problem for the rest of this year, but we'll give the premise one more day to prove or disprove itself. It's starting to look like so many other things the media loves to spin though.... far more conjecture than actual truth. Our guess is that consumers won't cut back on spending as much as they (or the media) say they will. Although the $110 billion that won't be going into worker's pockets this year IS going to have an impact, it's not looking like spending is going to shrink by the full $110 billion. As for the government's $85 million sequester, that will shrink spending by the full $85 million. The take-away: Consumer stocks will likely end up shrugging off 2013's modest roadblocks, but industrial and scientific-research stocks that rely on government funding are still going to feel the pinch. Be sure to plan accordingly. Like we said above though, even an $85 billion cut in government spending isn't going to put the economy in the nosedive the way some Wall Streeters want to make you believe. Two For the Road Four months ago, Bryan Murphy was doing everything he could to steer people away from Sarepta Therapeutics (SRPT). Now he's pounding the table in support of buying the stock. What changed? He explains it right here, with "Don't Look Now, But Sarepta Therapeutics Is Finally Out of its Handcuffs." His picture may be worth a thousand words. It may also be worth a thousand bucks.... and maybe more. Bryan also revisited Zynga (ZNGA) today, as a follow-up from his last look at the online gaming stock in February. In simplest terms, the rally effort misfired a few weeks ago, but Murphy makes a valid point that sometimes it can take a couple of tries for a stock to work its way past some key hurdles. If you want to see the specific chart and levels Murphy's eyeing, then check out "Almost There: Zynga Is Within Reach of Starting a Monster-Sized Move." By the way, Zynga is one of the holdings currently in the SmallCap Network Elite Opportunity. And, the SCN EO has really scrutinized it, not only from a fundamental point of view, but also a technical one. (The pick is also up pretty nicely from where the EO picked it, so....) If you want to know the price target the SmallCap Network Elite Opportunity has set for ZNGA, or if the SCN EO sells the stock before reaching there target, there's only one way to find out.