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Market Comeback Gains Steam

Scott Redler

The market's comeback gained momentum Wednesday, as the Dow and S&P erased all of Monday's losses. The sell-off that greeted investors to start the week ostensibly represented at least a short-term complexion change, but this market continues to prove its steadfast resilience. The S&P and Dow both finished up around 1.3%, while the Nasdaq gained 1.0%.

The price action in stocks over the last two weeks, and its related catalysts, could be proof that the Fed still largely controls this market. FOMC minutes last week hinted that some hawkish Fed governors want to take away the punch bowl in 2013, which weighed on the market. But all it took to reassure jittery investors this week was Chairman Ben Bernanke's congressional testimony. The Chairman reiterated his stance on QE that its risks are manageable and benefits significant, and gave no indication that the Fed is realistically thinking about ending or curtailing its controversial asset-buying program.

Once again, the market roared back to life without any help from former market leader Apple (AAPL). We have said it many times before, but traders have become so conditioned to watching AAPL every day, that they are ignoring more compelling set-ups in the market. Many were look at today's annual investor conference as a potential catalyst, but CEO Tim Cook offered no new evidence that a new dividend or stock split was imminent, and AAPL failed to ignite. The stock, in fact, finished the day down 1.0%. Until AAPL breaks its multi-month downtrend, traders would be best served to focus elsewhere.

We saw many sector ETF's today stage impressive snap-backs. The Homebuilders ETF (XHB) had started to weaken considerably over the past week, but was boosted yesterday by strong housing data and today continued to re-built upside momentum. The ETF surged 2.2%.

The Basic Materials ETF (XLB) also performed well today after lagging in recent sessions, posting a 1.8% gain. The financials had started to weaken a bit on the European headlines Monday, but bounced back nicely today, with the Financial Sector SPDR ETF (XLF) posting a 1.6% gain. The Industrials (XLI) had been standing alone as the best-in-breed sector in recent days, and that continued today as the ETF finished up 1.9%.

We are seeing bullish technical patterns ignite nicely in some lesser-followed names. Palo Alto Networks (PANW), although it closed off its highs of the day, broke nicely out of a mid-level base and looks like it could head higher. FiveBelow (FIVE) also extended nicely after a short-term consolidation, and Jive Software (JIVE) surged 6.2% out of a nice base.

We have seen several former momentum darlings that had more recently been maligned come back to life in recent months. Netflix (NFLX) is the most notable example. Today, another one joined the party in the form of OpenTable (OPEN). The stock broke well out of a lower level base on its way to a 4.3% gain.

3-D printing leader 3-D Systems (DDD) also continues its comeback today from a poor earnings report. The stock was down as much as 20% on the day after earnings, but investors have used that dip as a buying opportunity. Steve Levay and Mike Lee in the Momentum Trader Mentoring Room continue to focus very heavily on the 3-D printing names due to their volatility. UNXL was also a focus for some traders today following its earnings report last night as the stock finished up more than 21% on the day. Steve Levay wrote today about what it takes to thrive during earnings season as a momentum trader.

Once again, today's action is proof that right now you should be a stock picker, rather than an index trader. If you pay attention to stock charts in isolation, ignoring the erratic action in the indices, you can potentially find some great tradable moves.

*DISCLOSURES: Scott Redler is long GOOG, BAC, NFLX, BBRY. Short SPY.