Stocks staged an impressive rally on Tuesday on higher trade. The major indices all finished higher on the day. The small-cap Russell 2000 led the move as it posted a strong 4.9% gain. The Nasdaq and the S&P MidCap 400 also posted impressive gains as they ended the session higher by 4.3% and 4.1% respectively. The S&P 500 surged 3.4% while the Dow Jones Industrial Average improved by 3.0%.

Market internals were decidedly bullish yesterday. Volume increased by 9.6% on the Nasdaq and 1.7% on the Big Board. Advancing volume eclipsed declining volume on both exchanges. On the Nasdaq the advancing volume/declining volume ratio ended the session at 6 to 1 and on the NYSE at 7 to1. Yesterday's market internals clearly point to institutional buying. Consequently we would classify yesterday as an accumulation day for the broad market.

The SPDR KDW Regional Bank ETF (KRE) has been one of the weakest ETFs in the market over the past year. Further, KRE has been down-trending since December of last year. Given the recent weakness KRE has exhibited, it should present a shorting opportunity into a bounce. A rally into resistance near $21.90 could offer a short entry trigger for KRE. We will be monitoring KRE closely for a potential entry into resistance.



On August 22 the Market Vectors Junior Gold Miner ETF (GDXJ) attempted to break out above a seven-day consolidation zone. However, yesterday GDXJ reversed course as it gapped down and tested support of its 20-day EMA and 50-day MA. A move back below yesterday's low of $35.33 could provide a shorting opportunity in this ETF.



Given the sharp reversal in the market yesterday, it is quite possible that we will cancel the EWM watchlist setup. If the market sees a follow-through day tomorrow we will likely take this setup off the table. It appears that our analysis of the S&P 500 in yesterday's newsletter was accurate. The $SPX.X not only held support of the 200-week moving average but also rallied sharply and is now likely to test resistance at the 20-week and/or 50-week moving averages.

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.