Okay so the market exhibited some spunk yesterday but the rally fizzled into the close. The session didn’t end with a thud. Emotions are still eerily flat, yet its something a little more sinister than indifference. I can’t put a finger on it because I still don’t feel like it’s as if anyone has screamed “fire!” in a crowded theater, but there's no mistake -- folks are heading for the door.

Even in that climate the market made a remarkable move off the canvass, a move I felt was in the offing based on action in the pre-opening period. I also didn’t think stocks would finish the session higher. So for most casual observers yesterday was more or less a throw away session, just investors mostly cooling their heels and waiting for today’s decision by the Fed. The thing is a lot was going on beneath the surface. Plus, doesn’t everyone know what the Fed is going to say anyway?

What I found intriguing about yesterday's session was it -- like all residents of the Island of Misfit Toys -- sprang to life. There were drug stocks moving higher, financial stocks edging higher, some airlines put in strong sessions and even a stale old industrial giant that some believe is destined for the trash heap sparkled. Making this eclectic mix of also-rans and death row stocks even more compelling was the fact they all traded higher on better-than-average volume. There have been many false starts in many of the names that acted well yesterday (except Eastman Kodak (EK) which hasn’t hinted at a rally in a decade).



Good Medicine

I like the way drug stocks acted yesterday. It wasn’t coordinated but all of a sudden there was a wave of buy recommendations and good news in the pharmaceutical space. Merck (MRK) and Schering Plough (SGP) enjoyed a robust session on evidence that backlash against Vytorin and Zetia is slowing. In addition Novo Nordisk (NVO) and Norvartis (NVS) received brokerage upgrades (and in the case of the former, FDA approval for a diabetes drug,) this helped to lift the AMEX Pharmaceutical Index (DRG) high enough to tickle its 20-day moving average. It’s obvious that some deep-pocketed institutional investors may begin to nibble at the drug stocks. Of course that’s assuming Congress hasn’t outlawed their right to make such investments. As for my firm's position, we're spying the space but haven’t committed to any of the names, yet.

I think the DRG would have to get above 310 on a closing basis on a wave of better than average volume before we could pull the trigger on any name in the group.


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Money Pit

The most exciting group in the market yesterday was the homebuilders. I must say after the news from the Case-Shiller Index and consumer confidence numbers I was sure homebuilders would move lower, much lower, perhaps. As it turns out the group looked great, even as it pulled back off intra-day highs. I must say my firm has a couple of open homebuilding positions from last week and I featured one of the names this past Saturday on Cavuto on Business on Fox News. I continue to think this is the ultimate contrarian play. There's no logical reason homebuilders should be higher… none! That's the message we get all the time from the mavens that know it all. While I agree with the logic - as someone that’s watched this market like a hawk for more than two decades the tape action and overbearing rhetoric suggests its time to take a position.

By the way, buying a stock doesn’t mean you believe a company is not going to face pressure in the future. It is simply an opportunity to make money. Don’t get married to the notion your investment must move higher over a certain period of time. If you get it right and make a strong gain, which these days is certainly a 20% return or more, then that’s fantastic. In the meantime I continue to like Ryland (RYL), Centex (CTX), Pulte Homes (PHM) and KB Homes (KBH), too. The DJ US Home Construction Index (DJUSHB) has a great chart- really. It’s in a reverse head & shoulders formation (normally very bullish).


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