Investors are most likely to buy the rumor and sell the fact

The bulls came back today with a dramatic recovery from Tuesday's sell-off. The S&P 500 Index was up 12.3 points, closed at 1178.17 and regained the support of its 10-day moving average at 1172.

Thanks to a weaker dollar and some upbeat earnings reports, stocks rebounded from the prior session's distribution. Most major averages recouped Tuesday's losses. But the rally only regained just over 70% of Tuesday’s losses and failed to reach the volume levels of the sell-off with just 1.1 billion shares yesterday compared to 1.3 billion on Tuesday. And Tuesday’s decline was the second time that the S&P has failed to punch through the resistance at 1185, which is just 10 points under its 200-week moving average.

Tuesday’s 165-point Dow plunge, down volume was greater than up volume. And these negative volume numbers are what technicians consider to be important indicators that a normal pullback could be about to occur. That is an early sign of distribution. 'Watch Out'

The dollar surged 1.7% in the prior session, but was dumped this session for a 1.3% loss. as I mention in last two posts that the consistent downtrend of dollar is the the main catalysts for the strength of the markets lately. Tuesday dollar up, stock down, Wednesday vice versa.

The Fed's monetary policy has been in focus as investors anticipate the central bank's launch of a new round of quantitative easing at the conclusion of its meeting on Nov. 3. I am very sure most of the bullish factors has already price in the market. Investors are most likely to buy the rumor and sell the fact. Just remember to lighten your stock exposure on the way up of this rally. I suggest you not to hold more than 20% stocks when approaching Nov. 3 Fed meeting and midterm election.