Can theMarket Continue the Bounce?

Broad markets continue the bounce off support on Tuesday as investors breath a sigh of relief. Spain gets some of the credit for the upside as the rumor has them prepared to establish a line of credit to deal with any hiccups along the sovereign debt way. Europe responded by gaining 1.8% on Tuesday. A look at the chart of IEV, iShares 350 Europe Index ETF shows a break from the consolidation pattern. This is worthy of our attention moving forward and could provide a upside play in the fund. EWP (Spain) and EWI (Italy) both moved from their respective patterns as well, up 4 and 3 percent respectively. The key will be a follow through from Spain on the “rumors”.

Another global move is in the emerging markets. A look at EEM, iShares Emerging Market Index ETF likewise shows break from the consolidation pattern. However the resistance at the $42 level is worth watching on the upside. The emerging markets have been a benefactor of the stimulus money around the world. Mexico (EWW), Indonesia (EIDO) and Philippines (EPHE) have seen their respectiveĀ charts remain inĀ solid uptrend short term. EMB, iShares Emerging Market Bond ETF has equally moved higher of late on the stimulus. Keep these and other emerging market opportunities on your watch list.

We discussed China last week and the move above resistance on FXI and GXC. Step back to a weekly chart and look at the March/April 2011 high and downtrend line. You will see on FXI, iShares FTSE China 25 Index ETF a break above this trendline. That is a positive signal for the fund. $38.60 would be the next resistance point on the upside short term. Be patient with the fund and expect volatility going forward.

The dollar broke lower Tuesday as the news in Europe sent the euro above the $1.30 level. FXE, Rydex Currency Euro Trust ETF pushed higher from the consolidation pattern and set up a potential move above $129.80 resistance. Likewise, UDN, PowerShares US Dollar Bearish ETF is moving higher at the $27.40 level resistance. Watching the dollar short term to see if the selling that was anticipated on the FOMC announcement of QE3 finally kicks in. If the dollar starts to drop in earnest watch the commodities as a benefactor short term.

Banks didn’t respond well to the earnings announcements. The revenue numbers have been on the light side, but earnings have been better than expected. However, a look at KBE, SPDR Bank ETF shows drop back near support at $23.50. A break on the downside will be a negative for the sector and the S&P 500 index. The regional banks (KRE) have already broken below support and continue to show negative action technically. The fundamentals on both money center and regional banks are not bad, but the outlook from analyst remains somewhat on the negative side. This has turned into more of a trading sector than many want to believe, andĀ it still offer plenty of upside opportunities looking longer term. Insurance (KIE) did break to a new high on the day as the stocks in the sub-sector continue to look positive. Watch the downside potential in the financials overall.

Volatility has fallen again on a two day bounce in the broad indexes. The VIX moved below 15 again as the buyers stepped in to push the broad index up 1% on the day. However, looking at the intraday chart the index did bounce of the low at 14.5 to close higher as the volatility picked up in the later part of the trading day. Watch to see how investors respond to after hour misses on earnings by Intel and IBM. This could put the pressure back on the technology sector today. Semiconductors have rallied nearly 4% the last two days, and based on Intel’s pre-market prices we could see some give back in the sector.

The second debate between Obama and Romney isn’t likely to have much impact other than to anger statisticians. Earnings are still the driving event short term.