Stocks And ETFs Take Big Bounce Higher From Oversold Levels

It was a bullish day on Wall Street as stocks and ETFs rallied back from oversold levels to post the largest one day gains since September.

The bulls were encouraged by good economic reports regarding positive existing home sales and an upbeat home builder index, along with encouraging signs from President Obama that a deal on the fiscal cliff would be reached in time to avert the oncoming $600 billion combination of spending cuts and tax increases now scheduled for December 31st.

Sales of of existing homes climbed to 4.79 million for October, up from 4.69 million in September and beating expectations. The home builder confidence index rose to 46 in November from 41 in October as builders continue to be optimistic about their futures.

Stock market equity had been down more than $800 billion since election day until yesterday’s rally.

Major Index ETFs
Dow Jones Industrial Average ETF (DIA) +1.65%

S&P 500 ETF (SPY) +1.99%

Nasdaq 100 ETF (QQQ) +2.43%

Russell 2000 ETF (IWM) +2.16%

Gold ETF (GLD) +1.2%

Oil ETF (USO) +2.3%

The major indexes were vastly oversold and came off those levels yesterday with the S&P 500 (SPY) closing back above its 200 day moving average. The Dow Jones Industrial Average (DIA) Nasdaq 100 (QQQ) and Russell 2000 (IWM) all remain well below their respective 200 day and 50 day moving averages and so in bearish configurations, notwithstanding today’s action.

VIX, the CBOE S&P 500 Volatility Index, also known as the “fear index,” collapsed today with a decline of 7.1% to put it below its 50 and 200 day moving averages. VIX ETNS including iPath VIX Short Term Futures ETN (VXX) fell sharply, with VXX down some 8.5% on the day as fear left the markets on the hope of a fiscal cliff settlement.

Bottom line: On a technical basis, major indexes now face significant overhead resistance and action this week is likely to be volatile based upon news flow and thin trading volumes. Today’s gains came on virtually no news, other than President Obama’s comments, and on very low volume, so we can expect more of the same, both up and down as the holiday week continues. Nothing serious happens to the upside until the S&P 500 can break and hold above next big resistance at the 1400 level, 1% above today’s closing level.

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