STOCKS CONTINUE TO STRENGTHEN AS SUPPORT LEVELS HOLD -- THE DOW SURVIVES TEST OF 200-DAY AVERAGE -- AS DO SEVERAL SECTOR SPDRS -- TRANSPORTATION REBOUND HELPS LIFT XLI -- SMALL CAP REBOUND IS ALSO HELPING SUPPORT RALLY

THE DOW HOLDS ITS RED LINE...A lot of underlying support levels have held this week, and stocks are now approaching overhead resistance.Tuesday's message showed the Dow  Industrials testing its 200-day moving average for the third time since the start of August.  Sometimes the third time is a charm.  And it looks like this time it is.   The red circle in Chart 1 shows the Dow refusing to close below its 200-day average this month and finally bouncing off it after several successful tests.  It also shows today's climb in the Dow approaching its twin August highs near 26,400.   As suggested on Tuesday, a close above those peaks (and its blue 50-day average) is needed to signal that a short-term bottom is in place.   Charts 2 and 3 show those overhead resistance barriers for the S&P 500 and the Nasdaq.  It looks like they'll be tested as well.  Daily MACD lines (bottom boxes) have turned positive for all three.  And their 14-day RSI lines (upper boxes) are close to crossing above 50.  That would be a sign of stronger upside momentum.

200-DAY SECTOR LINES HAVE ALSO HELD...Wednesday's message showed four sector SPDRs that were also testing their 200-day averages.  All four have survived that test.  Chart 4 shows the Materials SPDR (XLB) bouncing off its red line.  [Today's XLB rebound is being led by industrial metal stocks while gold miners are lagging behind].  Chart 5 shows the Health Care SPDR (XLV) trading back over its red line.  Chart 6 shows the Industrial SPDR (XLI) rebounding strongly after several tests of its red line.  The XLI also survived a test of its late May/early June low.  And it's getting a lot of help from a strong rebound in transportation stocks which are also bouncing off their spring low.   Chart 7 shows the Financial SPDR (XLF) also rebounding off its spring low and recovering nicely from two successful tests of its 200-day line.   The S&P 600 Small Cap Index shown yesterday is also bouncing off chart support along its late May/ early June low.    All of those groups are supporting today's rally.

CONSUMER DISCRETONARY SPDR CROSSES OVER 50-DAY LINE...It's also encouraging to see today's stock leadership coming from economically-sensitive cyclical stocks for a change.   Chart 8 shows the Consumer Discretionary SPDR (XLY) crossing over its 50-day average (blue circle) and reaching a new August high.  It's being led higher by apparel retailers, footwear, and home improvement stocks.  Technology stocks are also having a strong day.  The Technology SPDR (XLK) is also trading back over its 50-day line with a lot of help from semiconductors (which are doing the same).   While technology, industrials, cyclicals, and financials are leading today's rally; more defensive staples, utilities, and REITs are lagging behind.   That's another encouraging sign.