Bullish Engulfing, Piercing Line Reversal Day...Close Above Support...

Eight of nine sectors moved higher on Tuesday.  XLF +3.99%, XLB +3.89% and XLE +3.27% were the strongest sectors.

Last night on Chart Signals we posted this:

“The SPX closed at support and traders must now prepare for a potential break of support.  Key factors on Tuesday will likely be the strength or weakness of the Euro, interest rates and financial stocks.  Of course support is a pivot point and prices can still bounce up.  Traders must be prepared for a move in either direction. “

While we discussed a break of support entry in my live webcast last night, I clearly stated if the SPY gapped down in the pre-market to cancel the order.  That turned out to be exactly the right prescription.

In the webcast I was asked if everything I was sharing meant that a break of support was now the highest probability.  I said I couldn’t really answer that a break of support was the highest probability, only that it was a higher probability than during the past 8 weeks.

I was also asked how I could be talking about a break of support after everything I had been “hammering” about support over the past several weeks.  I said that was one of the great things about technical analysis, when new information comes onto the chart it has to be considered also.  Likewise, Tuesday's new information must also be considered.

So alerting everyone to the possibility of a break of support and at the same time encouraging everyone to watch for strength in the Euro and other financial indicators that could negate that break and signal a bounce off support, I left everyone for the night.

In the pre-market the Euro was higher, XLF lower and TLT slightly higher with stocks gapping down.  After a sell off during the first 30 minutes, rising interest rates, a weaker dollar, a stronger Euro and falling bonds led to a rally in stocks.  By the end of the day what a rally it was and all without AAPL in positive territory.  Yes, AAPL had more than a $17 rally off its lows in the last hour.

Traders that look for signals on an intra-day chart likely saw the W pattern reversal entry signal.  Traders that trade the daily chart will look for a break above the high of the low day which on many charts is today.

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Traders that entered bearish trades last Wednesday likely hit their targets today or should have moved their stops to protect profits.

All five indices traded below support and closed above horizontal support with major bullish candle patterns.

The broad indices all moved higher with the RUT +6.42% bullish engulfing, COMPQ +2.95% bullish engulfing, SPX +2.25% piercing line, NDX +2.12% bullish engulfing and INDU +1.44% piercing line.  The SPX moved up+24.72 and closed at 1,123.95.  The VIX moved down -4.63 and closed at 40.82.

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The SP futures once again sold down overnight and the SPY opened Tuesday down -1.58 at 108.35.  The SPY moved down 92 cents to 107.43 where buyers took control.  SPY then filled the opening gap and rose to 109.93 before falling more than a dollar.  By mid-day SPY was positive over 110 and then fell $2 to 108.  During the last 45 minutes SPY rose more than $4 to close at 112.34.

The Euro moved up 174 pips to close at 1.3351 at 5 pm on Tuesday.  Interest rates TNX closed down -0.04 at 17.81, bond ETF TLT fell -1.57 to close at 122.24 and Financials XLF was the leading sector to close up 45 cents on big volume of 224 million shares.

SPY volume increased to 458.7 million shares.  This was the eighth largest volume up day since the bear market bottom on March 6, 2009.   The up days with slightly more volume were March 6, 2009, March 18, 2009, April 2, 209, February 5, 2010, May 21, 2010, August 9, 2011 and August 11, 2011.

Buyers came out in volume after the move below support seemed to trigger capitulation selling once again.  View Tuesday as a reversal day.

The big NDX leaders like AMZN, BIDU, GMCR, GOOG, NFLX, QCOM and WYNN were up.  AAPL and PCLN formed long tail hammers.  Ninety NDX stocks moved higher.

Breadth strengthened as advancers led decliners 1.51 to 1 on the NYSE and 2.75 to 1 on the NASDAQ.

Exchange       NYSE        NASDAQ

Advancers      1,866           1,903

Decliners        1,233              691          

Leading stocks > +2% on Tuesday PCX, TSL, ENTR, ZAGG, CLF, FFIV, LDK, AKS, NVDA, FAS, ANR, SWK, VECO, CRUS, ZION, F, FCX, DECK, CREE, CSTR, URE, SWKS, SINA, LNG, LVS, FWLT, HAL, JDSU, MCP, DOW, X, CROX, KKD, SOHU, C, A, TIF, RCL, GES, CRM, TPX, GS, UAL, NTES, UNP, SNDK, ESI, ARUN, SWN, COH, CIEN, BAC, MOS, JNPR, DLR, STI, SMH, INFA, VMW, NKE, W2DC, GMCR, ICE, IL, CMG, DE, NDAQ, CAT, CF, SLB, TBT, WLT,

Losing stocks < -2.0% included FAZ, SWL, ATI

NDX 100 stocks stronger than the NDX included SHLD, AKAM, FFIV, NVDA, WYNN, VRTX, YHOO, CTRP, CTXS and PCAR.

Stocks weaker than the NDX include TEVA, LINTA, CERN, MXIM, NIHD, AAPL, PCLN, FSLR, MYL and QGEN.

Nine NDX stocks including CTSH, FFIV, INTC, LRCX, SNDK and YHOO moved above their 30 DMA making 19 NDX stocks now above the 30 DMA. 

Stocks to Watch on Wednesday

Holding Above 30 DMA = 4

TLT, IBM, ARUN, FAZ

Moving Above 30 DMA = 5

DECK, FFIV, ICE, INFA, SNDK

Moving Below 30 DMA = 0

Staying Below 30 DMA

UAL, ANF, CMG, CRUS, ENTR, HLF, HUM, NDAQ, NKE, SMH, STI, V, COH, GMCR, TIF, CHL, CRM, CROX, CSTR, DHR, IL, NVDA, SWKS, TPX,  VMW, JDSU, LVS, NGLS, SLW, SWN, A, CIEN, CREE, DE, RCL, URE, ATI, CF, DOW, GES, KKD, LNKD, MOS, RVBD, SINA, UNP, WDC, CDE, CLF, DLR, F, FAS, MCP, POT, UCO, WLT, ZION, AKS, CAT, FWLT, PCX, JNPR, NTES, SOHU, ZAGG, GLW, SWK, TSL, BAC, VECO, LDK, HAL, ESI, FCX, GS, SLB, ANR, C, TBT, X

Eight Week Intermediate Term Market Trend: Neutral

Short Term Market Trend: Down