This is the bull market that won't die! I am sure that's how the bears feel right about now. Daily headlines about the ongoing protest and unrest in Egypt are not having an effect on the market. Two weeks ago the disappointing Q4 GDP numbers failed to have an impact. Now this past Friday's severely disappointing jobs report failed to have an impact.

A week ago the market produced a huge bearish reversal and stocks look poised to collapse after weeks of gains. Yet there was no follow through lower. Soon the bounce turned into a route as shorts scrambled to cover positions. This drove the market past resistance to new two-year highs. A relatively consistent string of positive economic data for the U.S. certainly did not hurt.

The ISM services and ISM manufacturing data was positive. Investors blamed it on the weather and managed to shrug off the jobs number of +36,000 jobs when economists were looking for +150,000. On top of all the positive economic data (sans the jobs report) we're seeing an increase in money flows back into equity funds. For a long time the average investor has been sitting on the sidelines. Now we're starting to see some participation, which could rally help fuel another leg higher.

It was a bullish week for the major averages. The S&P 500 immediately bounced following the January 28th sell-off and reversal. There was zero follow through lower. Once traders saw that the market was not going to collapse the market surged higher, squeezing the shorts, on February 1st. Once past resistance at the 1300 level the S&P 500 took a few days to rest and consolidate gains. The trend is up and no one seems willing to sell.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

Once again traders bought the dip at the NASDAQ Composite's rising 40-dma. While we're only taking a few points the NASDAQ did manage to close above its January highs leaving the index at new two-year highs. After three weeks of chopping sideways the NASDAQ could be poised for another leg higher but I want to warn you that the 2007 highs near the 2800 level could be another touch obstacle to overcome (see weekly chart below).

Daily chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

The semiconductor sector remains a leadership group even without any help from its biggest component Intel (INTC). The SOX index has respected its rising bullish channel and rallied to new two-year highs. This group's relative strength is a big positive for the NASDAQ. Eventually this is going to see a painful correction but for now the trend is higher.

Daily chart of the SOX semiconductor index:

There has not been any follow through on the Russell 2000's bearish breakdown but the bottom of its previous channel could now be resistance. Traders are still buying the dips in the small caps and the $RUT does look like it wants to breakout higher. If it does breakout, the $RUT could turn into the leadership group again after six weeks of churning sideways. A move past the January highs near 808 would certainly be a positive development.

Daily chart of the Russell 2000 index:

I do want to point out that the Dow Jones Transportation index has been underperforming. We're seeing a divergence between the major averages and the transports. Normally, a divergence like this is bearish. We want the transports to confirm the market rally and when they don't it's a warning sign. If we see the transports close under the 5,000 level again it will really cause concern. Can the market rally higher without this group? Yes, it can but a lot of investors believe in traditional Dow Theory and when the transports don't cooperate it will raise concern. Keep your eye on it.

Daily chart of the Dow Jones Transportation index:

The economic calendar for this coming week is pretty light. We'll get the normal weekly jobless claims on Thursday plus the wholesale inventory number. On Friday we will see the December trade balance numbers and the Michigan consumer sentiment figures. The biggest Wall Street event for the week will probably Cisco Systems' (CSCO) earnings report on February 9th, after the closing bell. Analysts are expecting CSCO to deliver a profit of 35 cents a share.

The lack of economic news and a dwindling earnings calendar will put even more focus on Egypt's plight. Yet unless things turn more violent I doubt Egypt is going to have much influence on our markets. This will leave investors looking for additional news and the focus could shift back towards Europe's debt troubles.

I have been looking for a market top and a correction to occur in the second half of January or first part of February but it would seem that is no longer in the cards. We're certainly overdue for a correction but that doesn't mean one is going to show up. An overbought market (or stock) can always get more overbought. We still want to buy dips near key support but I'm not expecting the big washout I was two weeks ago. I would still keep our position size small to limit our risk. Then we can slowly choose to add to positions as they develop.

- James