Yesterday’s sharp rally in stocks produced some positive developments on the S&P 500’s daily chart. Let’s start with the Relative Strength Index (RSI). Notice how long it has been since it was able to make a turn up from near the center line (50). If RSI can make a higher high, above most recent high, it would really help the bullish case in the short-term (next few weeks). Yesterday, we closed 7 points above the 50-day, which is the 2nd close above the 50-day in the last six trading sessions. Breaking the 50-day twice shows a change in market behavior. A few additional reasons for bullish hope are shown in the chart below.
Remaining patient and focused on the longer-term has paid some dividends in recent weeks. The S&P 500 is now over 8% above the intraday low set on July 1, 2010. We still have the 200-day to contend with at 1,113. If, emphasis on if, the market breaks through the 200-day in a convincing and sharp manner sometime in the next two weeks, it would fit well with the profile of the end of a stock market correction. For now, another close over the 50-day would be a welcome sign. We have taken a few more steps towards the edge of the bearish woods, but we are not out yet.