We Still Haven't Escaped the Bear

This exodus means that fund managers have less fuel to pump into the tank of this rally, despite improving fundamentals and a greater number of low-risk, high reward opportunities than we've seen in many months. Of course, the only real solution to this dilemma is for the public to fall back in love with stocks and step in with fresh inflows.

There's an old market expression, "When you can't find the volume at current price levels, it will eventually show up much higher or much lower." This wisdom suggests that the public will return to the action at higher levels as aggressive buyers, or at lower levels as aggressive sellers.

Let's hope the buy side of this prophecy works out. At this point, bulls have a slight advantage, but we shouldn't underestimate the level of disgust that Main Street feels for Wall Street after the Bear Stearns bailout. That revulsion might keep investors holding tightly to their speculative capital until at least the presidential elections.

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Small-Caps Lagging

Small-cap stocks are still lagging the major averages, despite healthy rotation into other first-quarter laggards. This is a big deal, because buying interest in small-caps points to speculative fervor that supports a long bull market run. Alternatively, selling pressure in these instruments exposes risk aversion, which can spread quickly to other equities.

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Admittedly, it's still early in the recovery process, so these high-growth issues could wake up at any time. But prior turnarounds have begun in small-cap stocks and then spread into other instruments, so the failure of this group to attract buying interest right here and right now adds another note of caution to the current uptick.

On the flip side, Russell-2000 Trust(IWM - Cramer's Take - Stockpickr) technicals have improved marginally in the last week. Accumulation is starting to perk up, with the on-balance volume (OBV) indicator showing a return of mild buying interest. Its current path of travel opens the possibility of a double bottom that would offer solid support to the rally effort.