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Minyanville's T3 Daily Recap: Market Stages Biggest Two-Day Rally in a Month


Bank of America, Citigroup, and Apple are in the news.

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The market staged an impressive rally for the second straight day on hopes a fiscal cliff deal is imminent. Both President Obama and House Speaker Boehner have started to soften their stance in recent days, but significant work still remains before a final budget gets done. The Nasdaq led the way higher again, surging 1.46%, which is a sign of healthy risk appetite. Today's two-day rally was the market's biggest two-day move in more than a month.

The selling pressure we saw late last week in the S&P was contained by all major moving averages, which were starting to converge and turn up. That is the type of buy set-up traders salivate over, although we have had slightly less conviction because we are heading into the holiday season. When the tape starts to dry up a bit, your best bet is to focus on the strongest stocks and sectors.

We have been pounding the table on the banks for the past few weeks as many of them based near key resistance levels. A perfect example is Bank of America (NYSE:BAC), which frustrated traders with its inability to break with momentum above the $10 level. However, patience is a virtue as a trader, and in our opinion, there was never a reason to get out of BAC longs below $10. On December 5, we got that igniting bar through $10. Over the last two weeks, BAC put in a tight flag in the upper end of that igniting bar, giving traders confidence the stock could get a secondary move higher. Today, BAC closed at $11.36, which represents a 13.6% move from the $10 trigger.

Citigroup (NYSE:C) also formed a very bullish macro cup and handle pattern in 2012 and triggered that pattern this week. The key level was around $38.75. We saw a nice cash flow trade through that level this week. The question now: What will it lead to? The initial measured move would take the stock to around $43, and the larger measured move would take the stock to around $52. These are the types of patterns that repeat themselves and should be noted, even if you missed them.

Apple (NASDAQ:AAPL) also triggered a nice clean "Red Dog Reversal" strategy yesterday. After a multi-day sell-off, the stock traded lower through the previous day's low and then triggered the strategy when it traded back above it. Stops are placed at the lows of the day on the trade. The "Red Dog Reversal" strategy provides a great short-term cash flow set-up, but we have to measure composure in the subsequent days to see if the set-up will lead to a bigger move. AAPL saw great follow-through to that move today, finishing up 2.9% to close the gap from last Friday. The stock was extended away from its 21-day moving average, which could act as a magnet over the next couple days.

We will continue to preach caution into year-end, despite the fact we have seen great selective action in this market. As we head into holidays, you often see volume and volatility dry up, although the fiscal cliff situation is adding some spice to this market. Don't get greedy with winning positions in this type of environment. If trades do go against you, the best traders know how to take a loss.

Marc Sperling is long MNST, REGN, AAPL, JAZZ, AMZN, TUMI, ZNGA, MCP, MLNX calls, GNRC calls, PCLN, UA, DNDN, GNRC, DELL calls, DELL, JAZZ calls, APOL, VHC calls, SIMG, ZNGA calls, ANTH, AMD, FB calls, AOL calls, AIG calls, UA calls, PANW calls, AAPL calls, BIDU calls, C calls, FB calls, GS calls, AIG, SHOS, CMG calls.

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