Light volume persists but yesterday's rally was still impressive. The Russell 2000 (^RUT) has made substantial progress since Monday's sell off and appears ready to take on again the rally highs from earlier in August.

As discussed yesterday morning during a chart analysis slot on CNBC, the technicals are becoming more favorable but I would be looking for follow-through volume when trading resumes after the Labor Day break to validate any break above 760.



The 1320 target for the S&P 500 (^SPX) coincides with the 50% retracement level and becomes key target in the short term. The real test as to whether this current move is more than a bear market rally will arise as we approach the 1350 level.



The banking index (^BKX) still has some work to do to convince me that it is capable of breaking out of the triangular formation.



GLD, the exchange traded fund for gold, should make further progress towards $85, but previous support may now well become a level that attracts short sellers.



XOP, the exchange traded fund that tracks oil and gas exploration registered a rather bearish hanging man candlestick pattern yesterday as it attempted to rise beyond moving average resistance. The sector opened on its high for the day and saw price rejection on a pick up in volume.



Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.

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