A positive reaction to the quarterly earnings report of semiconductor giant Intel Corp. sparked a broad-based rally yesterday, enabling all the major indices to zoom back above their 50-day moving averages. Stocks gapped substantially higher on the open, then built on their gains throughout the entire session. The Nasdaq Composite raced 2.8% higher, the S&P 500 2.3%, and the Dow Jones Industrial Average 2.1%. The small-cap Russell 2000 and S&P Midcap 400 rallied 3.1% and 2.9% respectively. Buying programs in the final ninety minutes of trading comprised nearly half of the day's gains, and helped stocks finish at their intraday highs.

Total volume in both the NYSE and Nasdaq swelled 11% above the previous day's levels, causing the S&P 500 and Nasdaq Composite to score their second straight "accumulation day." Market internals were quite strong, indicating the market's rally penetrated into just about every industry sector. Advancing volume exceeded declining volume by more than 6 to 1 in both exchanges. Although trading still failed to rise above 50-day average levels, it's positive that the past two days of gains have been accompanied by higher volume. Institutions are stepping back into the market, so I suspect it won't be long before turnover moves back to average levels.

When the main stock market indexes fell below support of their four-week uptrend lines and 50-day moving averages on April 11, it changed our intermediate-term bias from bullish to neutral. However, we also said it was too early to declare the new intermediate-term uptrend as being dead. Because lighter volume accompanied the April 11 sell-off, we were not convinced the bears had regained control yet. The following day, stocks dipped lower again, but turnover dried up to its lightest level of the year. With such minimal sell-side volume, we reasoned it would not require much buying pressure to re-ignite the bullish bias. That's what has happened over the past two days, both of which saw the major indices advance on higher volume.

Yesterday's strong session pushed the main stock marked indexes back up to their prior ranges of consolidation that followed the April 1 breakout. The April 11 - 14 weakness undoubtedly shook out the "weak hands" who were looking for a good excuse to sell their long positions. As such, the market now has less overhead supply (price resistance) to contend with. This increases the odds of stocks breaking out to new April highs in the coming days. The pivotal resistance levels of each of the major indices is clearly defined with their respective highs of their early April consolidations. Take a look at the daily chart of the Dow, for instance, which has a well-defined band of horizontal price resistance just overhead:



The area between 12,733 to 12,767 is a pivotal band of resistance for the Dow. Both the S&P 500 and Nasdaq Composite have similar chart patterns. For the S&P, pivotal resistance is in the area of 1,386 to 1,396. For the Nasdaq, watch the 2,391 level. I suggest setting price alerts for each of these levels on your trading software, as a solid rally above these levels could position the market for substantial gains in the intermediate-term.

Though we're certainly not expecting the main stock market indexes to move back to their 52-week highs, the market is indeed presenting us with a tradeable bear market rally. I suggest taking advantage of the strength while it lasts. Prior to yesterday, the best ETF setups were in specific sectors such as oil, basic materials, and alternative energy. But the better than expected earnings report from Intel enabled strength to spread to the tech sectors as well. With broader-based strength now hitting the markets, your odds of profitably trading the long side are much better. ETFs that showed relative strength or consolidation patterns during the market's recent pullback should be the first to break out to new highs in the coming days. We're now long three positions, two international ETFs and one alternative energy ETF, each of which is showing a solid unrealized gain. Given the institutional buying of the past two days, we're now more comfortable deploying additional capital as well. As always, we'll send an Intraday Trade Alert to subscribers if/when we enter any new ETFs with a positive risk/reward ratio. Trade what you see, not what you think!

Open ETF positions:

Long - INP, PBW, EWW
Short - (none)

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and Morpheus Trading Group, a trader education firm launched in 2001 that provides daily technical analysis of the leading ETFs and stocks. For a free trial to the full version of The Wagner Daily or to learn about Wagner's other services, visit MorpheusTrading.com or send an e-mail to deron@morpheustrading.com.