Right on cue, the major indices rebounded perfectly off support of their 20-day exponential moving averages (EMAs), erasing a majority of last week's losses in a single session. Stocks began the day with an opening gap up, trended higher throughout the first half of the day, then drifted sideways to slightly lower in the afternoon. Unfortunately for the bulls, volume was sorely lacking, but gains were nonetheless solid. The Nasdaq Composite gained 1.9%, the S&P 500 1.8%, and the Dow Jones Industrial Average 1.3%. Blue-chips, which showed relative strength last week, yielded to strength in tech yesterday. Small and mid-cap stocks turned in the strongest performances. The Russell 2000 and S&P Midcap 400 indices jumped 2.4% and 2.1%. A late-day pullback prevented the main stock market indexes from closing at their best levels of the day, but they still closed around the upper quarter of their intraday ranges.

One key element missing from yesterday's rally was volume. Turnover in the NYSE was 17% lighter than the previous day's level, while total volume in the Nasdaq receded 20%. In both exchanges, volume limped in to its lowest levels in weeks, likely due to many traders being absent in observance of the Jewish holiday Yom Kippur. Whenever rallies that follow pullbacks occur on much lighter volume, regardless of the reason, an extra ounce of caution is required. Gains scored on significantly lighter turnover can easily be erased by just a single session of institutional selling. Overall, yesterday's advance was apparently the result of the bears taking a break from their recent selling operations, rather than the bulls aggressively stepping in to buy. We'll continue monitoring the broad market's price to volume relationship for hints of whether or not last week's sell-off is likely to develop legs. With the exception of last Friday's losses on lighter volume, the negative price to volume relationship in the broad market has favored the bears over the past week.

As the stock market rallied throughout most of the month, solar energy stocks outperformed the gains of the major indices. Below, the recent relative strength of the solar sector is shown on the "percentage change chart" that compares the prices of Claymore Global Solar Energy (TAN) and the benchmark S&P 500 Index ($SPX):



Taking a look at the daily chart of TAN, we see the current pullback to the 20-day EMA, with the 50-day MA just below that, provides a low-risk entry point to buy TAN:



Waiting for a rally above the high of the past two days would provide some confirmation that TAN has formed a short-term bottom on this pullback. It would also cause TAN to move back above its 20-EMA on the hourly chart before buying it. A relatively tight stop could be placed below the September 14 low of $9.42, which is also below the 50-day MA. On the upside, a rally above last week's high would correlate to a breakout above a significant area of horizontal price resistance (the July highs). A new, dominant uptrend could subsequently develop.

In our September 25 commentary, we discussed the potential bottoming pattern that was shaping up in PowerShares U.S. Dollar Index (UUP). Since then, UUP has been coiling up in a tight range, and may soon trigger a valid buy entry based on a short-term trend reversal. The daily chart below shows the recent bottoming action, while the shorter-term hourly chart that follows more closely illustrates the potential buy trigger point:





The recent breakout in spot gold, above the $1,000 per ounce level, is once again in danger of failing. There is frequently, but not always, an inverse correlation between the value of the dollar and the price of spot gold. As such, it appears the strengthening U.S. dollar may be weighing on the price of gold and silver, regardless of how nice their recent breakouts looked. Below is the daily chart of SPDR Gold Trust (GLD), a popular ETF proxy that follows the price of spot gold futures:



At the moment, GLD is trying to hold support of its 20-day EMA (the beige line) on its current pullback. However, a drop below the low of the past two days could quickly send GLD down to its 50-day MA (the teal line). If the U.S. dollar (and UUP) breaks out above resistance, it could easily cause GLD to fall below the short-term support shown above. As such, we've tightened our stop on Gold Double Long (DGP) going into today. If our new stop is hit, just below the two-day low, we'll still lock in a decent gain on the trade.

In yesterday's commentary, we said, "In the very short-term, our bias is basically neutral, at least until we see how the major indices react to the current test of their 20-day EMAs." Because volume was so light on yesterday's rally, our thoughts remain the same going into today, despite the perfect bounces off the 20-day EMAs. Today's action will be more indicative of the market's next move than yesterday's.

Open ETF positions:

Long - DGP, GDX, DBB, FCG, UNG
Short - DUG (an inversely correlated ETF we're long)

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and MorpheusTrading.com, a trader education firm.