We've had a broad two-day rally, carrying the market (SPY) up a bit over 2%. Since March, 2003 (N = 818 trading days), we've had 60 occasions of two-day periods that were up more than 1.5%. The next day, SPY averaged a gain of .11% (40 up, 20 down), which is stronger than the average daily gain for the sample of .05% (454 up, 364 down).
The VIX dropped very sharply during the two-day period, as premium came out of the options. When we've had a gain in SPY of 1.5% or greater in two days and the VIX has declined by 10% or more (N = 16), the next day in SPY has been up by an average of .15% (13 up, 3 down).
I do notice, however, that the two-day period also averaged a very low TRIN of .62. When we've had a rise of 1.5% or greater and a low TRIN, the next day in SPY has averaged a loss of -.04% (18 up, 12 down). When TRIN has been high, the next day in SPY has averaged a gain of .26% (22 up, 8 down).
Overall, two days of strength have led to some bullish follow through strength the next day. When patterns are mixed, however, I have found it prudent to be patient and wait for the market to show its hand before wading in--particularly before a big employment report.
UPDATE: We moved sharply higher on the employment news. Interestingly, however, when we've been up two days and have an up open, I show subnormal performance on an open to close basis. That doesn't mean that we'll necessarily have a significant decline. It simply means that, since March, 2003, two strong up days followed by a solidly up open has occurred ten times and six of those occasions resulted in a down trading session from open to close.
Nonetheless the recent strength has been impressive. We haven't had two solidly up days followed by a solid up open since May, 2005.