Stocks followed through on momentum of the previous day's rally yesterday, but the bulls took a rest in the afternoon, causing the major indices to give back about half of their intraday gains. Nevertheless, the Nasdaq Composite still tacked on another 1.0% gain. The S&P 500 advanced 0.4% and the Dow Jones Industrial Average climbed 0.3%. The small-cap Russell 2000 and S&P Midcap 400 gained 0.3% and 0.1% respectively. Each of the main stock market indexes finished near the middle of the day's range.

One very positive element of yesterday's session is that stocks managed to register another bullish "accumulation day" by rallying on higher volume. Total volume in the NYSE increased 9% over the previous day's level, while volume in the Nasdaq rose 6%. In yesterday's commentary, we discussed the bullish price to volume relationship stocks have been exhibiting over the past week, and yesterday's "accumulation day" continued to build on that. Mutual funds, hedge funds, pension funds, and other institutions have been showing a healthy appetite for stocks, a necessary element in order for the current rally off the July lows to be sustainable. The only possible downside is that market internals were not very impressive. In both exchanges, advancing volume exceeded declining volume by a ratio of less than 2 to 1.

As the domestic stock market has begun finding some legs, we've been scanning through charts of the numerous international ETFs for buying opportunities as well. Last week, we liked the setup in Market Vectors Russia (RSX), which had corrected down to major support of both its 200-day moving average and its long-term uptrend line. On July 17, RSX gapped up to break out of its base of consolidation, triggering our buy entry. Unfortunately, however, the breakout failed and RSX fell to new lows as the domestic markets moved higher. Though we clearly had good reasons for buying at the time, we closed the position for a loss because it is now showing way too much relative weakness. But on the upside, we now like the pattern and price action in iShares Hong Kong (EWH), which we bought on July 22. Below is a snapshot of its long-term weekly chart (moving averages have been removed for better clarity of the pattern):


Not surprisingly, EWH trended lower from May through July, alongside of the main stock market indexes. It undercut its May 2008 low in the process, but notice that it never traded down to a new 52-week low. Because last year's rally was more gradual than that of the S&P 500 and Dow Jones Industrial Average, it held above its prior low from last August.