The S&P 500 rose 17 points today, closing at 850, retracing about half the decline from yesterday.

Volume picked up, with the NYSE Composite trading 7.2 billion shares compared to Monday’s 6.85 billion shares.  Volume has averaged about 6.7 billion shares since the beginning of February.

Breadth was 5:1 to the upside.  Yesterday, breadth was 27:1 on the downside as the button-pushers did their thing. 

We continue to be in an upward sloping trading channel.  The indices touched on the lower band this morning and immediately bounced.  Nothing has changed over the past few trading days.

The VIX closed at 37, recouping 40% of the rise yesterday.  It is in a downward sloping channel.  The rise in the index yesterday did not change that.

There is something different about this rally.  Stocks are going up on bad news.  Today, Caterpillar and AK Steel were both up off lousy earnings. 

This has been going on for awhile.  Last week, Ingersoll-Rand pre-announced a bad quarter and went up.  Likewise, REITs that have been able to float stock – such as Kimco, whose offering last week was oversubscribed and closed up a point and a half on the day of the issuance – have bounced hard off the news.

Have you seen Apple and Google lately?  Both look like they have put in a definitive bottom.

I am of the opinion that this is a bear market rally.  But who does not believe that?  Virtually everyone whom I speak with and almost every article I read doubts this rally.  Even I do. 

The rally could go on for awhile, though I remain open-minded that we may be topping.  We are very overbought, and I am watching closely to see evidence that the market is rolling over so I can dump my ETFs. 

However, the skepticism so many people have regarding the sustainability of this rally makes me think we could go significantly higher.