***Executive Summary***

• Stock Market Stance Remains Neutral
• Positive Breadth Extremes
• Dissecting Volume
• NDX and SPX Volume
• Major-index ETFs Surge with Huge Moves
• UUP Bounces After Weak Open
• GLD Hits Support Zone
• USO Stalls at Resistance
• TLT Gaps Down 
• Today's Video will be posted by 8AM ET (video link)

***Stock Market Stance*** Neutral on 29-January. It was a pretty impressive rally. There were positive breadth extremes and volume expanded. At the very least, this rally establishes support for the major-index ETFs. In order to turn bullish, we need to see follow through with conviction. The market was down sharply over the last 4-5 weeks and one day is not enough to undo this technical damage. We have seen 1-2 day bounces fail over the last four weeks. Let's see if this one is any different. As noted in the daily chart analysis for the major-index ETFs, I suspect that we will see follow through and a bear market rally will unfold. However, I am not rushing into to long positions. Bottom pickers on Monday afternoon or Tuesday morning are in good shape, but long positions after 6-7% surges risk a pullback or even a failure.

Market moving events for the next few trading days:

• Wednesday: Crude Inventories
  -Earnings: Bon-Ton, Staples, Hot Topic, Jo-Ann Stores
• Thursday: Retail Sales, Jobless Claims
  -Earnings: Imax, Con Ed, Aeropostale, Pacific Sunwear
• Friday: Consumer Sentiment
  -Earnings: Compass Group, SkillSoft
• Monday: No economic reports.
  -Earnings: Six Flags, Schawk, 3Com, eDiets
• Tuesday: Housing Starts, Producer Price Index (PPI)
  -Earnings: FactSet, Sirius XM, Adobe, Darden Restaurants

***Technical Highlights***

***Positive Breadth Extremes*** For the first time since 16-Dec, the S&P 1500 ETF (ISI) recorded a double positive breadth extreme. AD Net% surged to +94% and AD Volume Net% reached +96%. This is about as broad as a surge can get. Also note that the Net New Highs indicator held above its November low in March to form a positive divergence for the indicator. Technically, positive breadth extremes and positive divergence trigger a bullish signal for breadth that could last 4-8 weeks. I still think this is just a bear market rally though. The AD Line and AD Volume Line both moved to news lows in early March. A major bottom is often accompanied by positive divergences in the AD Line and/or AD Volume Line.

***Mixed Volume*** Volume is the next check for rally robustness. NYSE volume surged above 2 billion shares for the second highest reading of the year. Half of that 2 billion can be attributed to Bank of America (BAC), GE, Wells Fargo (WFC) and JP Morgan Chase (JPM). Nasdaq volume was above the 250-day SMA, but did not exceed the February highs (blue dotted line) and I was not impressive with Nasdaq volume. Also notice that both indices broke their channel trendlines yesterday.

But wait a minute. There is something strange about reported volume. The BarChart.com most active list does not include Citigroup. The Wall Street Journal and NYSE.com most active lists include Citigroup with over 1 billion shares volume. In fact, a quick volume tally for the Wall Street Journal's five most active stocks exceeds 2.2 billion shares. To further complicate matters, this tally exceeds the total NYSE volume reported by the Wall Street Journal (2.172 billion shares). What giveth? Exchange volume is yet another statistic that we must view with caution.

There must be a better way. I also look at volume for the major-index ETFs (SPY, DIA, QQQQ and IWM). However, this too has been diluted with the advent of double and triple versions of the same ETF. Perhaps it is time to get back to basics by looking at common stock volume. Stockcharts.com provides volume figures for the S&P 500 and Nasdaq 100. Yesterday's SPX volume was the second highest of the year and well above the 200-day SMA. In fact, upside volume was comparable to that seen at the November low. Based on the S&P 500, I would say that volume confirmed yesterday's big advance.

The Nasdaq 100 is a different story though. NDX volume was above average, but in line with the February highs and well below the late November surge. NDX volume exceeded 1.5 billion to mark the November low, but barely made it above 1 billion yesterday. This detracts somewhat from yesterday's surge. 

***Major-index ETFs***

***Medium-term Trend*** While volume and breadth are important indicators, price action is first and foremost among my analysis tools. Stocks became oversold in early March and forged a reversal over the last four days. There was a sharp decline on Thursday, indecision Friday-Monday and a sharp advance on Monday. It is not a classic candlestick pattern, but the elements for a short-term reversal are there. While this is impressive price action, it is just one day and not enough to reverse the medium-term downtrend. In fact, it is not even enough to call for an extended bear market rally. Bargain hunting and short covering can drive one day oversold bounces. It takes big institutional buying to provide the follow through necessary to confirm a reversal. I suspect that we will see follow though and a counter trend rally will unfold over the next few weeks. However, I am not rushing into the market. Instead, I would like to see follow through for confirmation and then look for a pullback or consolidation. The red rectangles mark the first resistance zones.

***Short-term Trend*** Despite a huge advance on Monday, QQQQ, SPY and IWM remain below last week's highs. In addition, all three finished near trendline resistance. The gap and surge were strong enough to establish support, but not strong enough to reverse the 20-day downtrend. We have see prior surges fizzle within two days. Therefore, I want to see most of these gains hold and follow through advance before calling for a trend reversal.

***Inter-Market Charts***

***Dollar*** The Dollar was down sharply before the market open yesterday and this may have fueled the rally in the stock market. With the Dollar being the safe-have currency, selling in the Dollar signaled growing confidence and a bigger appetite for risk. Even so, the US Dollar Index Bullish ETF (UUP) recovered after its gap down as buyers stepped in after the open – for the second time in three days. The ETF formed a white candlestick and I consider this price action positive. Moreover, the bigger trend remains up as the ETF holds above the December trendline and support zone. The Euro Trust ETF (FXE) opened strong and closed weak to form its second black candlestick in three days. FXE is trying to bounce off support, but the inability to follow through after the strong opens simply reinforces resistance at 129. No trend reversal until there is a breakout.

***Gold*** Gold suffered as stocks and the Euro rose. The Gold SPDR (GLD) is still within its support zone on the daily chart. Broken resistance, the February lows and the lower channel trendline combine to mark a support zone around 87. This is an important test for the medium-term uptrend. Failure to hold in this area would be bearish. On the 30-minute chart, GLD failed to hold last week's surge and moved to new lows yesterday. This decline established a definitive short-term resistance level at 93.

***Oil*** Stocks surged and the Dollar weakened, but the United States Oil Fund ETF (USO) did not take advantage of these bullish developments. Perhaps oil had already priced these in. After a run from 23-29, resistance in the 28-30 area is not that surprising. The medium-term trend remains down and this was viewed as a counter trend rally. On the 30-minute chart, last week's wedge breakout remains in play with support at 26.5. While I did not like yesterday's price action (strong open and weak close), I would wait for a break below support before negating the wedge breakout.

***Bonds*** Bernanke's words did not stoke the bond market on Tuesday. Instead, bonds fell sharply as money moved from relative safety to relative risk (stocks). The gap up in stocks was greeted with a gap down in bonds. The iShares 20+Yr T-Bond ETF (TLT) affirmed resistance at 107 for the fourth time in five weeks. Moreover, the medium-term downtrend remains in play and a consolidation break would signal a continuation lower. On the 30-minute chart, TLT is back in the support zone around 101-102. Trading has been a right mess since 9-Feb, but this range will be broken one day. With the bigger trend down, I would expect a downside break.

Good day and good trading -Arthur Hill

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Breadth Charts ---------------------------------

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Disclaimer: Arthur Hill is not a registered investment advisor. The analysis presented is not a solicitation to buy, avoid, sell or sell short any security. Anyone using this analysis does so at his or her own risk. Arthur Hill and TD Trader assume no liability for the use of this analysis. There is no guarantee that the facts are accurate or that the analysis presented will be correct. Past performance does not guarantee future performance. Arthur Hill may have positions in the securities analyzed and these may have been taken before or after the analysis was present.
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About: The Daily Swing is posted every trading day around 6AM ET and focuses on short-term strategies for QQQQ, SPY and IWM. In addition, at two stock setups are featured every day with a detailed trading strategy. As warranted, coverage extends to broad market topics, key sectors and industry groups and inter-market securities (gold, bonds, the Dollar and oil).
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Sources: Data from Bloomberg.com, CBOT.com, Kitco.com and ino.com; Charting from Metastock (equis.com). Closing data from Reuters.com, eSignal.com, MS QuoteCenter and Yahoo! Finance.