It was a wild day on Wall Street yesterday, as the main stock market indexes swung in a massive intraday range of 11% before posting some of their best gains of the year. After a brief morning rally attempt failed, stocks began drifting lower at mid-day, then nosedived after most of the major indices fell below support of their October 10 lows in the early afternoon. But after the main stock market indexes plunged nearly 3% in just fifteen minutes, the bulls stepped up to the plate and changed the situation in a big way. From 1:00 pm ET until the closing bell, stocks trended steadily higher, gaining momentum along the way. Finishing at their intraday highs, the Nasdaq Composite gained 6.5%, the Dow Jones Industrial Average 6.7%, and the S&P 500 6.9%. The small-cap Russell 2000 and S&P Midcap 400 indices zoomed higher by 8.5% and 8.2% respectively.
Total volume in the NYSE motored 38% higher, while volume in the Nasdaq swelled 43% above the previous day's level. The broad-based gains on higher volume enabled both the S&P 500 and Nasdaq Composite to score a bullish "accumulation day" that was indicative of institutional buying. Although stocks declined on higher volume in the two preceding sessions, overall volume levels were more significant yesterday. Turnover in the Nasdaq, for example, rose above its 50-day average level for the first time in ten days. Unfortunately, NYSE volume remained below average. As to be expected, market internals were quite strong. Advancing volume in the NYSE beat declining volume by a margin of nearly 13 to 1. The Nasdaq adv/dec volume ratio was positive by more than 8 to 1.
In yesterday's Wagner Daily, we illustrated how the major indices were positioned to test key support of their prior lows from October. We then said, "Because this is such a major area of support, we don't expect a break of these lows to come without a bit of gyration and fakeout moves to the downside. . .There's also a good chance these prior lows will lead to another significant rally back towards the middle of the recent trading ranges." As such, it was not surprising that the mid-day breakdown to fresh five-year lows in the S&P 500 and Nasdaq Composite led to a subsequent afternoon reversal. When markets approach such obvious levels of support or resistance, "fakeout" moves that don't follow through are common. In this case, yesterday's mid-day breakdown was a "bear trap" that sucked in the short sellers.
