The SPYs rose until the lunch hour then really exploded upwards after the Paulsen announcement. Also note the volume spike at the end. This indicates enthusiasm continued into the end of trading. It also indicates traders are willing to hold positions overnight, which is a sign of confidence.
The QQQQs gapped up at the open, but meandered until the Paulsen announcement. But after the announcement they were also very pleased and rallied. Like the SPYs, we had a volume spike at the end which is encouraging.
The Russell 2000 was more like the SPYs. The IWMs opened with strong upward volume, slowed a bit and then rallied into the close. They also had a strong end of the session volume spike.
Notice that all three averages closed on heavy volume. Traders are confident the job report tomorrow will be positive.
Notice on the 10-day SPY chart he have an uptrend in place. But I still want to caution -- this is a messy uptrend. All of the gaps over the last few days -- gaps in both directions -- are still on the chart. There is still a ton of volatility in this chart.
Over the last 10 days, the Russell 2000 formed a double bottom, rose to a head and shoulders reversal pattern, fell to another double bottom and then rallied through resistance on today's price action. But like the SPYs -- there is still a ton of volatility on this chart. This chart has changed directions three times in the last 10 days. That's a lot of traders changing their minds about the market.
On the SPYs daily chart notice the index has
1.) Moved through downside resistance
2.) Moved through the 10 day SMA
3.) Moved through the 20 day SMA
4.) Moved through the 50 day SMA
5.) Moved through the 200 day SMA
6.) Printed two strong upward moving bars
7.) Gapped up three times
8.) Gapped down twine.
In other words, it's time to ask the question, "has the index reversed from its downward trajectory?" The technical information would indicate yes, the index has reversed. The moves through the moving averages and previous resistance levels indicates the markets are heading higher right now.
BUT -- AND IT'S A REALLY BIG BUT
This could all change on the employment report tomorrow. That is a huge wild card in the markets.
Also remember, we have seen a ton of gaps in both directions. It's a very precipitous rally that could change at a moments notice.
And finally, the economic backdrop is still very questionable. While everyone is anticipating a Fed rate cut, people seem to be forgetting the reason behind the rate cut. The Fed is not cutting rates because they want to give the markets a Christmas present. The Fed will cut rates because they are concerned about the housing market, a possible economic slowdown and credit markets that are grinding to a year-end halt. And those are fundamental reasons to sell the market, not buy it.
So, if the rally continues, it probably has a time limit that could come very quickly.
