***Executive Summary***

• Stock Market Stance Turns Bullish
• Positive Breadth Extremes Again
• SPX Volume Remains Strong
• Sector Leaders'
• Elliott Wave Counts
• Follow Through Surge Looks Impressive
• UUP Falls As Stocks Rise
• GLD Gaps Up After Harami
• USO Moves Back to Resistance Ahead of OPEC
• TLT Hits Retracement Resistance
• Today's Video by 8AM ET (video link)

***Stock Market Stance*** Bullish on 13-March. Now there's a risky statement: turning bullish on Friday the 13th. Nevertheless, the bulk of the evidence is bullish and points to a rally over the next few weeks or even months. There were positive breadth extremes on 10 and 12 March. SPX volume surged over the last three days. The advance over the last three days was broad with the right sectors leading. The VIX and VXN broke below their February lows. I also included two different Elliott Wave counts. Even the bearish count allows for a further 15-20% upside from current levels (SPY). Even though I am turning bullish, I will wait for short-term oversold conditions or a bullish consolidation pattern to emerge before considering longs. This means a pullback to improve the risk-reward ratio. Also don't forget that Bernanke may be on 60 Minutes this weekend and the Fed makes is policy statement on Wednesday.

Market moving events for the next few trading days:

• Sunday: Bernanke on 60 Minutes
• 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
• Wednesday: FOMC Announcement, CPI, Crude Inventories
  -Earnings: General Mills, Nike, Oracle, Herman Miller
• Thursday: Jobless Claims, Leading Indicators
  -Earnings: FedEx, Morgan Stanley, 3Com, Palm Teekay
• Friday: Quadruple Witching
  -Earnings: Kirklands

***Technical Highlights***

***Positive Breadth Extremes*** There is no arguing with back-to-back positive breadth extremes in the S&P 1500 ETF (ISI). AD Net% surged to +90% and AD Volume Net% reached 89.40%. I am taking the liberty of calling it +90%. With the second positive breadth extremes in three days, the bulls are on a broad buying binge. This is the kind of lift off that makes for a sustainable advance. Notice that AD Net% and AD Volume Net% fell short of positive breadth extremes in late November. Even so, the S&P 500 still gained over 25% from its late November low to its early January high. This week's positive breadths extreme lay the foundation for a rally back towards the October-November highs – maybe even higher.

***Mixed Volume*** Volume is still out of whack on the NYSE. The first image shows the five most active stocks and total volume. Notice that volume for the five most active stocks (1.766 billion) is almost equal to total volume (1.797 billion). I would assume that the other 3,182 issues traded more than 33 million shares. Therefore, I am not going to use NYSE volume for analysis purposes. I would, however, like to note that the five most active stocks are financial related. Four are pure financial, while one is a conglomerate (GE). It is positive to see this group surging on big volume.

For now, I am going to rely on stockcharts.com for SPX and NDX volume. These indices feature common stocks – no preferred stocks, no ETFs and no closed-end funds. SPY volume surged on Tuesday and remained high on Wednesday and Thursday. Even though volume was lower the last two days, I think it was high enough to validate the surge. SPX volume was above 7 billion on Tuesday and above 6 billion on Wednesday and Thursday. 20 billion shares in three days ain't chump change. Nasdaq 100 volume is not as impressive. Volume was above average the last three days, but nowhere near the levels seen in late November. This is cause for some concern.

***Sector Leaders*** The PerfChart below its divided into two timeframes. The bottom half shows the losses from 2-January to 5-March. Financials, industrials and consumer discretionary led the way lower. The top half shows the gains over the last three days. Financials, materials, consumer discretionary and technology led the way higher. It is natural for the most beaten down to rise the most because they have the most to recover. Even so, I was impressed to see the technology, financial and consumer discretionary sectors showing leadership. Technology represents the appetite for risk. The financial sector must recover to prevent a deeper recession. The consumer discretionary sector represents consumer spending, which is needed for an economic rebound.

***Elliott Wave Counts*** There are two Elliott Wave counts competing for supremacy. At issue is the counting or non-counting of price action in October. Did a Wave form in October? Or, was October just part of the big Aug-Nov decline? There was a lot of price action in October and I am calling it an ABC correction that is Wave 4 of the bigger Wave 3. This means that the Nov-Jan advance was Wave 4 of the bigger structure and we just completely Wave 5. If Wave 5 was just completed, then we should be set for a decent advance over the next few months. At the very least, this advance must exceed the high of Wave 4 (95). Failure to do so would argue for the alternative count, which is show on the second chart. This second chart ignores the October mayhem and suggests that we just finished the big Wave 3 decline. Even with this more bearish count, a corrective rally is still in order with an upside target that could reach 85-90. A move above the Wave 4 high (95) would argue for the more bullish count on the first chart.

***Major-index ETFs***

***Medium-term Trend*** How can the trend be down when my trading stance is bullish? The trading stance is based on indicators, immediate price action and other things. The trend is based on lower lows-lower highs (downtrend) and higher highs-higher lows (uptrend). Strictly speaking, the early January highs marked the last reaction high for IWM and SPY. QQQQ formed two equal highs in early January and early February. It would take a move above these levels (higher high) to identify a clear uptrend. In the meantime, we have a big surge over the last three days. IWM hit the bottom of its first resistance zone, while SPY and QQQQ moved into their resistance zones. I think the March lows will hold for some time now, but I will now wait for some sort of pullback or short-term oversold condition before considering long positions. It is a personal decision based on my trading style. Let the market come to me. I do not like the chase the market and I prefer a better risk-reward ratio. Sometimes the market does not offer pullbacks, but this is the risk I am prepared to take.

***Short-term Trend*** QQQQ, SPY and IWM broke above short-term resistance levels to start an uptrend. The break came with a strong move and a strong close. Impressive stuff. With all three nearing first resistance zones on the daily charts, I will be watching the 60-minute charts for a pullback. Typically, 38-62% retracement offers a good zone for anticipating support and a resumption of the advance. However, the pullback has yet to even start so this zone will move higher if the market continues higher. The green boxes mark the 38-62% retracement zones based on yesterday's high.

***Inter-Market Charts***

***Dollar*** The dynamics for the Dollar may be changing – at least for the next few weeks. Stocks are surging with financials leading the way. The Dollar was the safe-haven currency of choice, but a surging stock market increases overall confidence in the system. Notice that the US Dollar Index Bullish ETF (UUP) declined over the last three days. Even though this could still be considered a pullback within a bigger uptrend, traders should be prepared for further weakness if stocks continue to move higher. Key support for UUP remains at 25.9 and a break below this level would officially reverse the uptrend. The Euro ETF (FXE) surged above 129 to break resistance finally. It looks like the Euro is turning the corner.

***Gold*** Despite a surge in stocks and the Euro, the Gold SPDR (GLD) got a nice bounce off support. Perhaps it was because of the sharp decline in the Swiss Franc. The harami on Tue-Wed and gap on Thursday are short-term bullish. However, gold could also loose its safe-haven status if stocks continue higher. For now the harami-gap are in play for a short-term reversal. A move below the gap would negate yet another short-term bounce in gold and likely foreshadow a move lower. On the 30-minute chart, GLD bounced off its support zone for the second time in two weeks. The ETF manage to break the blue trendline, but stalled around 91. GLD has not been able to follow through on these 1-2 day pops. Sound familiar. This was the stock market's problem in February. I am wary of yesterday's pop in the face of stock market strength and Dollar weakness.

***Oil*** Oil got a nice bounce on Thursday. Surging stocks, a falling Dollar and this weekend's OPEC meeting probably sparked buying interest. OPEC could announce its fourth supply cut on 15-March. The United States Oil Fund ETF (USO) has lots of resistance around 28-30 from broken support. The big trend remains down, but the rally over the last few weeks was the strongest since July. At the very least, oil could be tracing out a base. Should stocks extend their advance, USO could move into the low 30s. On the 30-minute chart, USO formed a higher low with the surge back above 28. The short-term trend remains up with key support at 26.

***Bonds*** The surge in stocks is negative for bonds. Even though bonds were not much of a safety net in January-February, they still represent a safer alternatively to stocks. With stocks moving sharply higher, the propensity to own bonds is even more diminished. I am showing a close-only chart today. On a closing basis, TLT formed lower highs the last few weeks. In addition, the ETF broke below its February lows in early March. There appears to be downward pressure on bonds over the last few weeks. Moreover, the ETF never recovered after the sharp January decline. This consolidation is looking more like a continuation pattern than a reversal pattern. On the 30-minute chart, TLT surged to 104 and retraced 62% of the prior decline. If this bounce is a dead-cat bounce, then I would expect TLT to fail around the 104 level.

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.