The big news so far this week is that President Obama has re-appointed Fed Chief Bernanke to another 4-year term.  This tends to make logical sense, as Bernanke has done his best to calm the markets since last year and changing course in the middle of an economic downturn would likely provide instability.  One can debate whether the longer-term effects of Bernanke's fiscal policies will cause a weakening of the U.S. balance sheets and currency, but in the shorter-term he has provided massive liquidity, some of which is going directly into the stock and bond markets.

The underlying trend in the markets continues to be to the upside.  After last week's Percent R bullish re-test on the major indices that we mentioned, we have seen a bounceback rally.  As of Monday's close, we are above the key levels of 1,000 on the S&P 500 (SPX) (SPY) and 2,000 on the Nasdaq Composite (COMP) (QQQQ).  The CBOE Volatility Index (VIX) keeps moving back to the 25 level.  We did see an extremely low CBOE Equity Put/Call Ratio this past Friday, which is a source of some concern, as it means there was a massive amount of Call buying relative to Put buying. 

On the SPX Daily Chart below, you can see that we look to have begun another leg of the uptrend.  This appears similar to the beginning of the March and July rallies, but certainly there is some risk of pullback due to the large gains we have seen since the Spring.

SPX Daily Chart



Stepping back to a longer-term Weekly Chart of the Russell 2000 (RUT) (IWM), you can see the strength on the weekly perspective.  The RUT has been outperforming the Nasdaq as of late, indicating that small and mid cap stocks are rallying ... many would view this as a broadening of the buying in this current bullish rally.

RUT Weekly Chart

Volatility has come back down a bit after a recent small move up.  Some are anticipating a rise in volatility as we head into the historically volatile months of September and October.  With the VIX sitting around the 25 area, it does appear that option premiums are fairly "cheap" right now relative the wild movement swings we see on a daily basis (although more and more, the movement is all in the first and last hour of the trading day).

VIX Daily Chart

Bottom Line:  Until otherwise confirmed, we are in a new leg of the uptrend.  Some are attributing the recent rally to a short squeeze and frothy speculation, but as we say "the chart tell the tale".  Ride the move up, but don't get greedy, as minor pullbacks within the uptrend can occur at any time.  Don't miss the upside while you are waiting for a long-term re-test of the lows.