Stocks were strong for the third consecutive day as investors shifted their focus from precious metals to banks and higher yielding securities. The market got a boost from factory goods orders, which came in twice as high as expected. But the primary mover was talk of something positive coming from the Fed’s meeting on Friday, and the speech afterward by Chairman Ben Bernanke.

But even after a three-day rally, the S&P 500 is still trading range-bound between last summer’s high at 1,130 and this year’s breakdown at 1,260. The CBOE Volatility Index (VIX) fell just 0.56 points yesterday, indicating for the third day that there is low confidence that the rally will continue. 

A major change took place in one sector: gold. The metal fell $104 to $1,737.50 an ounce, and the SPDR Gold Shares (NYSE:GLD) lost $6.24. This is not the first correction that the ETF has sustained this year. In March, GLD fell from $153.01 to $142.45 in five days, and had a similar pullback in late June, as well. Both declines were quickly followed by a breakout and run to new highs.

But recently, GLD has had an unsustainable run, and an increase in margin rates after the close by the Chicago Mercantile Exchange will no doubt drive it even lower today. However, the long-term trend is still up, and any deep correction should bring in more buyers.

Yesterday, the financial stocks were the best performers for the first time in many months. There are many undervalued stocks in this sector with reasonably high dividends. And so it appears that the Fed’s ceiling on rates is forcing investors into higher-risk assets with better yields.

Despite three days of buying, every major index is below its 200-day moving average by a wide margin. And in each of the last three days of gains, volume has contracted. Despite the triple-digit rebound, sell into the current rally — the trend is still down.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

• See Serge Berger’s Daily Market Outlook: Why Traders Should Play it Safe for the Rest of the Week
• See Sam Collins’ Trade of the Day: Sell This Semi Stock Into Rallies
• See Serge Berger’s Trade of the Day: Estee Lauder Looking Like an Attractive Buy