As discussed yesterday morning here ( Monday’s rapid sell-off stood a good chance of taking a breather on Tuesday to work off immediate-term oversold readings and wait for more corporate earnings to hit the tape.  Just like stocks finished at their absolute lows on Monday, they closed Tuesday at their absolute highs of the day.

Tricky tape you say?  Just be sure to have  a process and the willpower to stick to it through thick and thin so as to keep emotions at bay. Otherwise, as many an experienced trader will tell you, this game quickly turns into something that more closely resembles gambling.

As a result, the U.S. equity landscape yesterday was marked with inside days, such as the one clearly visible on the below chart of the Russell 2000 below.  More specifically to the Russell 2000, a break through the support line on the below chart, the index could work toward a better support level around the 860 area.  On the iShares Russell 2000 IWM the corresponding level is $86.

The coming days and weeks will bring about a stampede of corporate earnings announcements and as such it makes sense investors and traders will want to wait for more data before making broader portfolio allocation decisions.

The S&P 500 for its part also showed a good bounce yesterday and again proved that the November 2012 up-trend line still serves up a healthy dose of support.  As long as Monday’s low of 1552 holds the index is simply an intermediate term overbought consolidation phase.  Should however the mid March/early April support level at 1538 give I would declare the move to be a correction.  The coming days stand a good chance of either pushing the index into a correction or back to new 2013 highs.

On the sector front, most of them retraced (made good) around half of Monday’s selling.  The big exception here being the consumer staples sector which continues to defy gravity and yesterday pushed to a new 2013 high (red line).  The sector of course is of the defensive types, thus its relative strength does raise an eyebrow or two.

The precious metals too, after the clobbering on Monday took a breather on Tuesday.  Beyond the near-term bounce however both gold and silver continue to look weak and anything more than a scalp at this stage needs a better confirmed bottom.  Patience is key.

All in all however it was a rather quiet day as judged by few broker calls I received and an almost entirely dead Twitter tape.  Stay tuned for reaction to earnings announcements and remember that the trades with better odds set up after an earnings announcement rather than blindly holding a stock through the numbers.


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