Finally responding to emergency stimulus efforts to provide global liquidity, the stock market embarked on a moon shot that erased a significant portion of last week's losses. Just days after suffering the largest declines on record, the major indices roared back to score among their largest percentage gains in history. The Dow Jones Industrial Average motored 11.1% higher, the S&P 500 surged 11.6%, and the Nasdaq Composite raced to an 11.8% gain. Although the small-cap Russell 2000 showed relative weakness by gaining "only" 9.3% yesterday, recall the index jumped 4.7% last Friday, as both the S&P 500 and Dow Jones Industrial Average fell more than 1%. The S&P Midcap 400 gained 10.5%. For the first time in weeks, the main stock market indexes closed at their intraday highs.

Turnover receded from last Friday's furious pace, but still remained above average levels. Total volume in the NYSE declined 40%, while volume in the Nasdaq came in 38% below the previous day's level. Obviously, market internals were extremely positive. In the NYSE, advancing volume blew away declining volume by a margin of 19 to 1. The Nasdaq adv/dec volume ratio was positive by an astronomical margin of 36 to 1. With such bullish market internals, but lower overall volume levels, it appears there was quite a bit of short covering going on yesterday.

One could have thrown a dart at nearly any stock or ETF last Friday, and walked away with a solid profit yesterday afternoon. As such, it's pointless to discuss which industry sectors performed best yesterday. Just as essentially every sector in the market got ferociously slammed last week, all the industries bounced sharply yesterday. Not surprisingly, this makes it challenging to discern which ETFs are showing the most relative strength. However, as the main stock market indexes consolidate or pull back in the coming days, sector ETFs with the most bullish divergence will be relatively easy to spot. ETFs that merely trade sideways, or even continue higher, when the broad market takes a rest will be those with the most relative strength. Those ETFs, of course, will be the ones we'll be looking to buy in anticipation of a short to intermediate-term rally. As those setups become apparent, we'll be sure to give you a heads-up, right here in our daily market analysis.

Considering the major indices rallied more than 5% off their intraday lows in the final hour of trading last Friday, then gapped open another 5% higher yesterday morning, there was a good chance stocks would subsequently continue sideways throughout the remainder of yesterday's session, digesting the rapid gains. Instead, however, the main stock market indexes continued to power higher, approximately doubling their opening gains by day's end. Putting it all together, the benchmark stock indexes have rallied more than 15% in the course of just one trading day and one hour. Such volatile intraday moves are probably loved by momentum-seeking daytraders, but create minimal opportunities for swing traders who base their trade decisions on technical chart patterns or steady trends. Despite the tremendous rally, there were very few attractive trade setups on the long side going into yesterday's session. Still, we did buy one ETF we liked, Market Vectors Agribusiness (MOO). Take a look at its annotated hourly chart below:



Yesterday, most ETFs merely reversed from steep downtrends, without first breaking out above short-term bases of consolidation. Those were the plays we were not interested in, as they lack price support to catch them when they pull back off their highs. Rather, we were looking for plays like MOO, which had just broken out above the high of a five-day base of support. On the chart above, the number "1" marks prior resistance of the sideways range, at the $29.00 level. "2" shows where MOO ran into resistance of both its short-term high of $29.00, as well as the hourly downtrend line (the dashed blue line). "3" shows where MOO formed a short-term "double bottom" by "undercutting" its October 8 low of $24.75 (which is bullish). After breaking out above horizontal price resistance of $29.00 yesterday morning, "4" shows where we bought MOO, when it pulled back to test support of its morning breakout. Notice how the 20 and 40-period moving averages have also converged to form support, right below our entry price.

With MOO, we're only looking to play the momentum of a short-term (2 to 5 days) reversal. As such, our price target is resistance of the 20-day exponential moving average (around the $34.11 area). Though the market was quite strong yesterday, it's too early for high expectations of anything more than short-term strength off the lows. Our protective stops is below the 20/40 MA convergence on the hourly chart. As more setups like MOO develop this week, those are the ETFs we'll be cautiously looking to enter.

Recently, we reminded subscribers that, "The harder and faster stocks fall in a bear market, the more powerful the eventual counter-trend bounce will be." Yesterday's action was certainly a great example of this! It's quite apparent we're dealing with a market of great extremes, one in which it has become common to see day-to-day price swings exceeding 5%. Because volatility is so high right now, it's important to have measures in place to maintain controlled risk. Most easy to control is your average share size, which you may want to reduce in order to compensate for wider swings in the market. Protective stops may also need more "wiggle room."

One day of gains, no matter how monstrous, does not automatically call a bear market bottom. However, we believe the market may be at least be starting a tradeable short to intermediate-term, counter-trend rally. So, we'll take advantage of the momentum while it lasts, while also keeping in the back of our minds that the long-term trends still clearly point "down." As a side note, watch out for corporate earnings this week, beginning with Intel after today's close.

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.