Continued high volatility kept traders on their toes yesterday, as the major indices raced back to recover all of Monday's sharp losses, and then some. Bullish resilience helped the Nasdaq Composite to gain 2.5%, the Dow Jones Industrial Average 2.4%, and the S&P 500 2.3%. Small cap stocks maintained their relative strength, enabling the Russell 2000 to zoom 2.7% higher. The S&P Midcap 400 advanced 2.1%. Opposite of the previous day, each of the main stock market indexes closed at its intraday high.

Turnover swelled yesterday, allowing the stock market to maintain the positive price to volume relationship it has settled into in recent weeks. Total volume in the NYSE rose 16% above the previous day's level, while volume in the Nasdaq increased by 18%. The large gains on higher volume enabled both the S&P 500 and Nasdaq Composite to score another "accumulation day," the third such day of institutional buying within the past week. While it's still too early to determine whether or not we've seen the ultimate bottom of the current bear market, the broad market's recent price to volume relationship has clearly been positive. As such, we have no choice but to have a bullish bias on the intermediate-term. Yesterday's accumulation also helps tip the scales to the bullish side for the short-term as well.

In yesterday's commentary, we illustrated how the small-cap Russell 2000 had pulled back to support of both its 10 and 20-day moving averages. It was therefore not surprising that the bounce off key support enabled the Russell 2000, with textbook precision, to lead yesterday's broad-based rally. The Russell has showed the most relative strength of the main stock market indexes since the mid-July lows, and it once again outperformed the percentage gains of the rest of the major indices in yesterday's session. Looking at the daily chart below, notice how the Russell has moved back above its 50-day MA. It is the only broad-based stock market index that has done so:


As per our pre-market plan, we bought the Ultra Russell 2000 ProShares (UWM) just a few minutes after yesterday's open, when UWM moved back above its 20-period exponential moving average on the 15-minute chart. Because the pullback already put UWM at such a great area of support, just like the underlying index itself, we didn't require a lot of confirmation in order to initiate a new long entry yesterday. UWM cruised much higher after our buy entry, and is already showing an unrealized gain of 2 points. We now expect the Russell 2000 (and UWM) to rally above its July high in the short-term.