SMALL-CAPS LEAD BROAD ADVANCE - FINANCE SECTOR SHOWS RELATIVE STRENGTH - REGIONAL BANKS AND REITS POWER FINANCE - OIL FORMS BULLISH CUP-WITH-HANDLE PATTERN - XLE AND OIH BREAK RESISTANCE - GLD CHALLENGES 2008 HIGH.

SMALL-CAPS LEAD BROAD ADVANCE... Video Link (click here) Stocks moved sharply higher on Wednesday with a broad advance. All major index ETFs were up over 1%. All nine sectors were higher with energy and finance leading the way. The technology sector lagged with a relatively small gain on the day. Chart 1 shows the Russell 2000 ETF (IWM) surging around 2% and RSI moving back above 70. IWM is now up nine days in a row. From the September low, the ETF is up over 10%. With the ETF both overbought and bullish, it is like mid July all over again.

Chart 1

FINANCIALS POWER HIGHER... The Financials SPDR (XLF) led the sectors higher with a gain exceeding 3% on Wednesday. There are simply no signs of weakness on chart 2. XLF broke wedge resistance in mid July. After moving above 14 in early August, the ETF consolidated for 4-5 weeks. Support from the August lows held in September and the ETF moved above the August high to affirm the uptrend today. My only concern is relatively low upside volume over the last few weeks. In addition, the move is quite mature with the ETF up over 150% in the last six months. The August-September lows mark key support.

Chart 2

REGIONAL BANKS SURGE... Perhaps the biggest story in finance is the big surge in the Regional Bank SPDR (KRE). Chart 3 shows the ETF lagging the market with a decline in August, but KRE is making up for lost ground in September. KRE broke above wedge resistance and exceeded its late August high. Moreover, the stock is up over the last two days with above average volume. In the bottom indicator window, the price relative turned up and broke above the August trendline. The May-August highs mark the next resistance zone, and target.

Chart 3

REIT ETF BREAKS AUGUST HIGHS... Also within the finance sector, the REITs had a big day with the REIT iShares (IYR) gaining almost 4%. Chart 4 shows IYR bouncing off support at 37.5 in early September and moving above its August highs this week. Also notice that volume expanded over the last two days.

Chart 4

OIL BOUNCES OFF SUPPORT... Crude oil advanced after the Energy Department reported a decline in US inventories. In fact, inventories fell to their lowest level since January. I am showing two charts for oil. Chart 5 shows West Texas Intermediate ($WTIC)for a look at the continuous futures contract. $WTIC continues to meet resistance around 75, but a cup-with-handle pattern is taking shape. These are bullish continuation patterns that would be confirmed with a break above rim resistance. Given the decline in the Dollar over the last few weeks, it is surprising that oil has yet to break resistance. A failure at resistance and a move below the August-September lows would negate this pattern and be bearish for crude.

Chart 5

Chart 6 shows the US Oil Fund ETF (USO) with a large triangle taking shape. USO has been in consolidation mode since the advance from late February to mid June. As with West Texas Intermediate, USO established support with the August-September lows. The bulls get the benefit of the doubt as long as this support area holds. A break above triangle resistance would signal a continuation of the uptrend. A break below support would be bearish.

Chart 6

XLE SURGES ABOVE RESISTANCE... Energy shares attracted buying interest as oil and the stock market moved higher. Chart 7 shows the Energy SPDR (XLE) exceeding a resistance zone that extends back to early June. With another positive close today, XLE is up nine days in a row. Chart 8 shows the Oil Service HOLDRs (OIH) exceeding its June high with a big surge on Wednesday. OIH is up eight of the last nine days. From the September low to todays high, OIH is up over 15%.

Chart 7

Chart 8

GOLD POWERS AHEAD... Gold was strong again on Wednesday with the Gold ETF (GLD) challenging $100 for the first time since March 2008. Chart 9 shows daily candlesticks with a triangle breakout in early September. GLD broke resistance and never looked back. This is clearly a strong breakout as prices simply continued higher. The bottom window shows GLD with the Dollar Bullish ETF (UUP). Gold took off in September as the Dollar continued lower. GLD is rising a lot faster than UUP is falling. Perhaps gold is getting a whiff of inflation. Or, perhaps investors are looking for alternatives to currencies.

Chart 9

Chart 10 shows weekly bars with GLD challenging its March 2008 high. A large inverse head-and-shoulders remains in play with neckline resistance around 98-100. The triangle breakout increased the odds of a neckline breakout. A break above neckline resistance would target further strength well above 100, which translates above $1000 for gold.

Chart 10