Life appears to be grand for the bulls the past couple of days. Yesterday’s action appears to be strong in terms of closing prices, but was it as strong as everyone thinks? A year ago, I would have been excited to see such a rally. Today, I’d like to analyze it just a bit before waiving the all clear flag.

From a simple resistance/support view, it does appear by a healthy margin that the S&P 500 has broken above the 1330 level and is making a march potentially to 1400. The markets gapped open yesterday and never looked back.

Let’s take a look at a daily SPY chart since it typically follows the S&P.

On face value, it appears that the SPY too has broken above resistance and is headed toward the 139 - 140 level. But I’d expect a pullback, and potentially a sharp one at that. Take a look at yesterday’s volume for the SPY. A couple of things to note. First, yesterday’s volume was lower than the 20 day moving average volume. Next, look at the past three trading days. There appears to be a steady decrease in volume which may signal some tired out traders. The lack of volume might be a cause for concern. In any event, before the all clear is sounded, I’d like to see if this rally does indeed have legs. The first step in seeing if this rally is valid I think is to have a retest of that 1330 level and having it hold. If it fails, it may just be one of these two to three day sharp rallies nested in a bear market. Then again these markets have been very news driven the past couple of weeks it may be that no one has much of a clue about what’s going on.

Futures are marginally higher this morning. Let’s see if they can hold through the opening.