Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.

What originally looked as though it would be a big down day turned into a large rally, leading the S&P 500 to close up 2.25% on good volume. Despite some early afternoon weakness thanks to Apple (NASDAQ:AAPL), stocks managed to close right at the highs of the day after a massive move higher in the last 45 minutes of trading. 

All of the major equity indices and sectors left bullish candle formations on their daily charts. The Russell 2000, for example, finished the day with a so-called “outside day” where the day’s open-to-close range fully engulfed the previous day’s open-to-close range. In addition, stochastics are showing divergence from price (i.e., price made a lower low but stochastics did not) and this is bullish at the margin.

The massive intraday reversal yesterday may qualify as an important reversal day for the intermediate term, but that is a dangerous assumption to make at this stage. The S&P 500 closed well above the 1,100 mark but so far remains below the breakdown line (white line) and 1,130. That level may easily be overcome by the index in coming days, but for now we must respect it as potential resistance if for no other reason than to exercise enough risk aversion in this volatile tape. 

I showed the chart of AAPL yesterday, and highlighted the support zone between $350 and $360 due to the 200-day simple moving average and a support line. Yesterday’s early afternoon sell-off led the stock right into that zone only to then stage a big rally to close marginally lower on the day and leave behind a long hammer candle. While this doesn’t mean you should blindly buy, it does indicate a lack of significant sellers below the $355 mark for now.

The financial sector led the rally yesterday, which is something that I’ve pointed out time and again would be a necessity for a more sustainable oversold bounce. Morgan Stanley (NYSE:MS), for example, also had a nice “outside day,” and on the daily chart is showing divergence between price and stochastics. 

None of the bullish candle patterns on yesterday’s charts indicate that stocks can’t slide lower soon, but they do represent a decent likelihood that, in the very near term, stocks may nudge somewhat higher.