For the first time in months, stocks followed up a big day of gains with another strong advance, but lower turnover across the board was disappointing. The major indices gapped higher on the open, continued climbing throughout the morning, then made another leg higher late in the afternoon. The S&P 500 rallied 6.5%, the Nasdaq Composite 6.3%, and the Dow Jones Industrial Average 4.9%. Small and mid-cap stocks perked up, as the Russell 2000 and S&P Midcap 400 indices gained 7.4% and 7.5% respectively. A bit of profit taking in the final minutes of trading caused stocks to close off their best levels of the day, but the major indices still finished in the upper quarter of their intraday ranges.
Total volume in the NYSE decreased 8%, while volume in the Nasdaq was 16% lighter than the previous day's level. In yesterday's commentary, we expressed concern that last Friday's gains occurred on temperate volume, and it's unfortunate that turnover during yesterday's rally also failed to surge higher. Nevertheless, market internals were quite bullish. Advancing volume in the NYSE exceeded declining volume by nearly 12 to 1. The Nasdaq adv/dec volume ratio was positive by more than 15 to 1. Based on these readings, it was the broadest-based rally we've seen in quite a while.
The U.S. dollar has been on a tear in recent months, but momentum may be reversing. The PowerShares U.S. Dollar Index (UUP) was consolidating at its high, but it broke down below support of its 20-day exponential moving average (EMA) yesterday. Conversely, the CurrencyShares Euro Trust (FXE) rallied above its 20-day EMA. This may create a short to intermediate-term buying opportunity in FXE. Below, the daily chart of FXE illustrates the breakout above the 20-day EMA:
The blue horizontal line on the chart above marks resistance of the prior high from November 13. Yesterday's rally put FXE above its 20-day EMA, as well as its prior high. This creates a short-term buying opportunity to enter FXE on a rally above yesterday's high of 129.61. The upside price target is resistance of the 50-day MA, presently at 133.69. If entering over yesterday's high, an ideal stop is below yesterday's low and the 20-day EMA, around the 127.50 area. Regular subscribers to The Wagner Daily will see our detailed trigger, stop, and target prices below.
Yesterday, we illustrated how the S&P 500 would need to contend with overhead resistance of its prior lows from October 2008, which converged with its 10-day moving average.
