After opening substantially lower, it initially looked as though the major
indices were headed for another day of range-bound, indecisive action, but a
late-day rally enabled stocks to reverse early losses and finish much higher.
The Nasdaq Composite began the day with a 1.1% loss, then closed the session
with a 1.1% gain. The S&P 500 and Dow Jones Industrial Average followed
similar intraday patterns before climbing 1.4% and 1.2% respectively. Relative
strength in small-cap stocks, which we pointed out in yesterday's commentary,
became glaringly apparent today, as the Russell 2000 motored 2.8% higher. The
S&P Midcap 400 advanced 1.3%. All the main stock market indexes closed
convincingly at their best levels of the day.
Sharply higher volume accompanied yesterday's gains, enabling both the
S&P 500 and Nasdaq Composite to score their second "accumulation day" within
the past four sessions. Total volume in the NYSE surged 31%, while volume in the
Nasdaq rocketed 40% above the previous day's level. On July 17, two days after
the broad market formed its recent bottom, stocks gained on increasing volume.
Over the next two days, while the main stock market indexes consolidated in a
sideways range, volume declined. Then, as stocks resumed their recent
bullishness yesterday, higher turnover again matched the gains. This is
precisely the type of volume pattern stocks exhibit in healthy markets. Based
purely on the recent buying by mutual funds, hedge funds, and other institutions
over the past week (the two "accumulation days"), it appears overall sentiment
in the market is changing (at least for the near-term).
Yesterday, we illustrated how UltraShort Oil & Gas ProShares (DUG) had
pulled back to support of both its 10-day moving average (MA) and its
intermediate-term uptrend line. As anticipated, the 10-day MA "did its thing" by
prompting DUG to resume the direction of its relatively newly established
uptrend. Although DUG performed as expected, we passed on "officially" buying it
as a new ETF trade. Upon further analysis of the oil and oil service sector
charts, we came to the conclusion that DUG was more likely to chop around in a
range in the near-term, rather than actually resume its uptrend. Nevertheless,
DUG presented a low-risk intraday trade for traders who followed our idea to buy
yesterday's open. The bounce off the 10-day MA is shown on the daily chart
below:
While on the subject of pullbacks to the 10-day MA, you may find it
interesting to know that yesterday morning's low in the S&P 500 coincided
with a touch of its 10-day MA as well.
