The touch of the 10-day MA in the morning immediately resulted in price support that subsequently led to the late-afternoon rally. By day's end, the S&P 500 had broken out above the high of its recent range and its 20-day exponential moving average (EMA). Yesterday's low in the S&P 500 (the touch of the 10-day MA) should now become an anchor point for the lower channel of the uptrend that is now forming off the July low. The anchor point on the new uptrend line is circled in blue on the chart of the S&P 500 below:

In the July 18, 2008 issue of The Wagner Daily (last Friday), we illustrated resistance levels the S&P 500 would likely encounter in the near-term. With regard to the 20-day EMA of the S&P 500, we said, "The next resistance level the S&P 500 will soon encounter is the 20-day exponential moving average (EMA). . .because the May - July downtrend was so intense, a bounce to the 20-day EMA does not even represent a 38.2% Fibonacci retracement for the S&P 500. As such, pure momentum of the current rally should at least enable the S&P 500 to test its 20-day EMA sometime next week." As shown on the chart above, our expected test of the 20-day EMA indeed happened "sometime next week."

In that same commentary, we also suggested that a rally into the 20-day EMA would be a good place to take profits on long positions that were bought near the lows, or at least tighten stops to lock in gains. However, because the stock market had a few days of low volume consolidation after the initial rally, as well as two days of higher volume gains, we now think the major indices are not in great danger of quickly rolling back over (at least for the next several weeks). Still, with so much supply and numerous resistance levels looming overhead, it would be foolish to suddenly throw caution to the wind and begin aggressive buying operations.

Yesterday, we expressed concern over the fact that disappointing earnings guidance from Apple Computer (AAPL) caused its stock to tumble 10% in after-hours trading. This was only a concern because Apple is such a keystone, leading stock within the Nasdaq. But to the delight of iPod and Mac fans around the globe, Apple actually turned in a great performance yesterday! AAPL opened 10.5% lower, immediately found support, then begin trending steadily higher all day. By the closing bell, AAPL finished only 2.5% lower. Whether you care about AAPL stock or not, yesterday's resilience was an important sign for overall market sentiment. When stocks bounce back from bad news so quickly, it is another sign that the general bias is changing in favor of the bulls. In the near-term, we're now comfortable with conservatively buying stocks and ETFs with relative strength and/or bullish chart patterns. Just don't lose sight of the fact that the main stock market indexes remain well entrenched in long-term downtrends. Until price action proves otherwise, we must still assume current strength in the broad market is nothing more than a counter-trend bounce of a dominant downtrend.

Open ETF positions:

Long - EWH, GLD, RSX
Short - (none)