The major indices gapped up powerfully to begin Thursday's session. From the opening gap, to the closing bell, the bulls were firmly in command. Buying was both strong and broad based. The Dow Jones Industrial Average "roared" to its biggest gain in two months. Most of the action occurred during the initial 90 minutes of trading. From 11:00 am until the 2:30 pm reversal period, the major averages consolidated, before rallying into the close. The small-cap Russell 2000 led all indices, as it posted a 2.6% gain. The demand for large cap stocks lifted the DJIA to a 2% gain. Both the S&P 500 and the S&P MidCap 400 closed up 1.9% on the day. The Nasdaq lagged slightly, as it posted a 1.5% gain.

Total volume was up sharply in Thursday's trading. The Nasdaq posted a volume increase of 26%, day over day. NYSE turnover soared by an impressive 18%. On the NYSE, the ratio of a advancing to declining volume was a very impressive 9 to 1. The ratio on the Nasdaq was a more modest 3 to 1, in favor of advancing volume. The divergence between the indices may suggest that some investors were selling higher beta stocks into the rally. Nonetheless, market internals were strong. Thursday was clearly an accumulation day. Institutional investors were in command.

In Wednesday's newsletter, we placed the iShares Russell Microcap Index (IWC) on our official watchlist. IWC hit our buy "trigger" of $45.03, and we entered the trade. The 15 days of consolidation by this ETF, provided the "springboard" for the rally. This zone of consolidation now serves as a formidable level of support. IWC is now well positioned to continue its rally.

Many ETFs that have recently underperformed the market broke above critical resistance levels today. The SPDR S&P Homebuilders ETF (XHB), provides a good example. XHB made an impressive move today. But unlike much stronger ETFs, today marked the first day since June that XHB rallied above the 200-day MA. Further, a quick look at the weekly chart of XHB, provides a clear snapshot of what looms. The 200-week MA represents major resistance for this market laggard. A leading indicator that a rally is reaching exhaustion is when money begins moving into underperforming issues.







In the November 4 newsletter, IDX was mentioned as a potential buy entry. Although the Market Vectors Indonesia Index ETF (IDX) did not break out with the market today, it is nonetheless poised to rally to new highs. IDX continued its multi-week consolidation on Wednesday by closing at the top of the one month trading range. A break above Thursday's high marks a buy target for this ETF. As such, we are placing IDX on our watchlist. Details are provided below for our members.




In reviewing ETFs for today's newsletter, it was quite noticeable that most ETFs formed the same pattern. Virtually everything looked the same. Even though today's move was powerful, we do not recommend "chasing" the rally. We advise to begin watching for strong performers that pull back into support.

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.