As it turns out, the Two-Second Indicator has been vindicated, at least for now, as the sharp retreat in the market was reversed during the past few days. All the major indexes are back above their 50-day moving averages, and thus, the Cabot Tides have rejoined the Two-Second Indicator in bullish territory.

With that said, I am not a raging bull right this second. Far fewer stocks are looking good today compared to just a couple of weeks ago-a minor divergence that, while not totally unexpected (leadership narrows as bull markets progress), does tell you that buying power is slowly drying up.

Plus, I’m seeing a ton of sloppy charts-stocks that fell hard one week, rallied sharply the next, with every day showing the stock up or down a few points. Usually it’s better to see stocks tighten up, which tells you big investors are in control, accumulating shares in a small price zone.

Still, I am a trend follower, so you’re not going to catch me arguing with the market … but I’ll likely be more discerning with my buys than I was a few months ago, when nearly everything was heading higher.

Thus, in today’s environment, I’m looking for companies with great prospects, and with stocks that are not only strong but also liquid (they trade plenty of volume every day) and have great institutional sponsorship.

One name that’s attractive is Cree Inc. (CREE). The company is technically listed as a semiconductor company, however, its claim to fame has little to do with the chip sector and its notorious booms and busts. Instead, Cree is really something of an alternative energy story-it’s the leader in the production of light emitting diodes (LEDs), which are far more energy efficient than both standard bulbs and compact fluorescent lights (CFLs).

Here’s what I wrote about Cree two weeks ago in Cabot Top Ten Report:

“Cree Inc. is a leader in the production of light emitting diodes (LEDs), which are the next wave in energy efficient lighting. They consume as little as 10% of the electricity that incandescent bulbs use, generate low heat, last far longer (estimates of 20 to 40 times as long) and, unlike newer compact fluorescent light bulbs, contain no mercury and require no special handling. LEDs have been popular for years in laptops and cell phones, but as the demand for electricity rises and the efficiency of LEDs soars, their applications are expanding, especially for outdoor lighting; for instance, Cree is supplying Anchorage, Alaska, with 16,000 LEDs. With 80% of the firm’s revenues coming from outside the U.S., there’s a good chance countries like China, which already makes up a big chunk of business, could replace millions of bulbs in the years ahead.”

I like that revenue growth is starting to accelerate (up 5%, 9% and 20% the past three quarters) while earnings are booming (up 38% and 100% the past two quarters, with a 45% gain expected in the fourth quarter). And I love the fact that the story is simple and compelling-cost savings for lights makes sense, and demand for its LEDs should soar in the years ahead.

The stock popped on its earnings report on October 21, and has been bobbing and weaving with the market ever since. Right now, I think it’s a bit extended to the upside, as the 50-day moving average is down around 40. But I think it’s worth a shot at buying on any controlled pullback of two or three points.