The market broke out of its choppy, erratic four-day trading range yesterday, enabling each of the major indices to rally back above their 50-day moving averages. Stocks moved higher in the first ninety minutes of trading, then drifted sideways throughout the remainder of the day. The Nasdaq Composite zoomed 1.2% higher, the S&P 500 gained 0.9%, and the Dow Jones Industrial Average advanced 1.0%. The small-cap Russell 2000 and S&P Midcap 400 indices were higher by 1.1% and 0.7% respectively. The major indices backed off their highs late in the afternoon, but they still finished in the upper third of their intraday ranges.

Turnover was higher across the board, pointing to institutional accumulation behind yesterday's gains. Total volume in the Nasdaq was 12% higher than the previous day's level, while NYSE volume increased by 4%. But despite the "accumulation day," it's noteworthy that turnover in both exchanges remained below 50-day average levels. Like we mentioned yesterday, volume is likely to remain on the light side ahead of the three-day weekend. Market internals were solid, as advancing volume in the NYSE exceeded declining volume by a margin of 3.7 to 1. The Nasdaq ratio was positive by 3 to 1.

After consolidating below resistance of its 50-day moving average for four consecutive days, the S&P 500 gapped back above it. The Nasdaq and Dow followed suit as well. The reclamation of the 50-day MAs is obviously bullish for the broad market, but several of the other major indices are now facing more significant resistance of their prior highs from March. This situation is clearly apparent on the daily chart of the S&P 500:



As you can see, 1,438 marks the "swing high" that the S&P formed last month. Yesterday, the index probed above that level on an intraday basis, but settled just below it. If the S&P firmly closes above that level in the coming days, its "higher low" and subsequent "higher high" will represent a break of the intermediate-term downtrend. If this occurs, we will certainly respect the positive change in trend, but we simply must assume the intermediate-term downtrend will continue until the market proves otherwise. Although it's unusual for an index to completely recover from such a sharp correction in only five weeks, the possibility is not out of the question. Notice how the Nasdaq Composite has a similar pattern:



Just below 2,460 is the Nasdaq's "swing high" from March. Unlike the S&P, the Nasdaq has not yet tested that resistance level, though it will probably do so in the next one or two days. The Nasdaq is also further off its 52-week high than the S&P, so overhead supply may keep any rally attempt in check. Finally, take a look at the Dow Jones Industrials:



Mirroring the S&P 500, the Dow probed above resistance of its "swing high" yesterday afternoon, but closed just a hair below it. It will only take a gain of one point or more for the Dow to close above its March high, but the blue-chip index is still 120 points below the intraday high of the February 27 sell-off.

Yesterday, we explained why we were in "wait and see" mode with regard to entering new positions. Even though the last session was bullish and technically significant, we're still playing it cautiously with new trade entries until we see whether or not the S&P, Nasdaq, and Dow have enough momentum to push through their "swing highs" illustrated above. Traders and investors typically scale back their operations ahead of holiday periods, so we may need to wait until next week to see whether or not yesterday's gains were merely a relief rally or the start of a new intermediate-term uptrend.

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.