Tuesday’s Stock Rally Needs More Confirmation

As compared to the October 13 rally, yesterday’s (Tuesday) big move was accompanied by higher volume, and therefore more conviction. At the same time, I expected to see better chart setups when running through index and sector ETFs this morning. All in all, the results of my scan were a bit disappointing. In many cases, volume was lackluster. Also, price has significant resistance to overcome as many ETF charts reach trendlines and the point of prior breakdown.

Still, yesterday was potentially the start of something bigger. We will need to look for a follow through day, and more volume, to point to a more sustained rally.

- SPY (SPY): Out of the index ETFs I follow, SPY is among the more bullish. Price held the lows from earlier this month, and rose over 22% on good volume. Price is currently sitting at a trendline. A clear break above today’s high with volume would increase confidence in a potential rally.

- QQQQ (NASDAQ:QQQQ) had slightly higher volume yesterday, and is sitting at the apex of a prior symmetrical triangle breakdown. Price did not hold the early October lows. This chart is still quite bearish.

- iShares Russell 2000 Index (IWM) had also failed to hold the early October lows. Volume was weak yesterday, and price is sitting under a clearly-defined trendline.

- MidCap SPDRs (MDY): The midcaps have a lot of work to do.

- Financial Select Sector SPDR (XLF) held the early October lows, but volume yesterday was suspect. We are at the apex of the prior symmetrical triangle breakdown.

- iShares Dow Jones US Real Estate (IYR): Decent volume yesterday, but this chart still looks terrible.

- Consumer Discretionary SPDR (XLY): The consumer is still in a downtrend.

- Industrial Select Sector SPDR (XLI): Volume was not convincing yesterday in the industrial sector.

- Materials Select Sector SPDR (XLB): Ditto on the volume. This chart still looks quite bad.

- Market Vectors Steel ETF (SLX): I expected to see something more bullish when I looked at the steel ETF. Many sector stocks are starting to show signs of a bottom. However, SLX rose a whopping 18.6% on only average volume, and is hitting a trendline. I am glad I didn’t hold anything overnight.

- Oil Services HOLDRs (OIH) underperformed the steel sector in terms of price movement, but the volume looks better.

- iShares FTSE/Xinhua China 25 Index (FXI): Lots of volume. I would consider buying on a pullback for a swing trade.

- iShares MSCI Brazil Index ETF (EWZ): Still trending lower, but an increase in volume yesterday.

As I write this, the open looks to be sharply lower, with the Fed results this afternoon. While I may make some day trades, this looks like a good day to watch more and trade less.

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