After dipping lower on the open, stocks spiked higher one hour into the session, but the bullish enthusiasm was short-lived. Selling pressure hit the market just after mid-day, causing the major indices to surrender the morning's gains and eventually settle in the bottom quarter of their intraday ranges. The Nasdaq Composite slipped just 0.1%, while the S&P 500 and Dow Jones Industrial Average lost 0.5% and 0.4% respectively. The small-cap Russell 2000 fell 0.9%, but relative strength in the tech-heavy Nasdaq 100 Index enabled the index to keep its head above water by gaining 0.4%. The S&P Midcap 400 declined 0.7%.

Total volume in the NYSE eased 36%, while volume in the Nasdaq came in 19% below the previous day's level. The lower turnover was positive considering most of the main indexes lost ground yesterday. However, bear in mind that last Friday's trading levels were deceivingly high due to the "quadruple witching" expiration of options. Declining volume exceeded advancing volume in both exchanges, but internals were only modestly negative.

We closed out two of our ETF positions for solid gains into yesterday morning's strength, as both had rallied into resistance levels. First, we sold our long position in the Oil Service HOLDR (OIH), which had run into the upper channel resistance of its intermediate-term uptrend. Closing the position on the open, we netted a quick gain of 5% (9 points) since our September 18 breakout entry. The daily chart below illustrates the uptrending channel of OIH:



When a stock or ETF rallies into resistance of its uptrending channel, it does not necessarily mean it will automatically pull back to the lower channel support. Positions with relative strength will often ride the upper channel for days, or even weeks. However, our initial plan with this setup was just to trade momentum to a new high from the September 18 breakout. At this point, the reward/risk ratio for further gains without first having a short-term correction is negative. As such, we informed subscribers we would be selling into strength of the recent gains, rather than waiting around for a pullback. OIH subsequently moved three points lower after yesterday morning's exit.

In addition to OIH, we also took profits on our PBW position yesterday. We bought PBW when it broke out above resistance of both its 50-day MA and intermediate-term downtrend on September 18. Though we intended to hold the trade to a new high, it moved very rapidly up to an area of horizontal price resistance from July of this year. This is shown below:



As you can see, yesterday's high in PBW exactly matched resistance of the July high. This is similar to how the September 19 high in the S&P 500 coincided with prior resistance from June (per the annotated chart in yesterday's commentary). We sold PBW just five cents below yesterday's high, netting a gain of 6.6% (1.42 points) on the four-day hold.

Because of its relative strength, PBW should still be able to break out above resistance of the $22.89 level in the near future. However, it may first correct by either time or price. We plan to watch PBW for a potential re-entry point after it forms a base of support and subsequently rallies above yesterday's high.

Despite yesterday's losses in the broad market, many leading growth stocks still scored solid gains. Casual footwear maker Crocs (CROX), GPS leader Garmin (GRMN), and software company Vmware (VMW) were just a handful of leaders that broke out to new highs on firm volume. When market-leading stocks advance while the main stock indexes move sideways, it's a bullish sign for the overall environment. Conversely, rallies in the major indices without the participation of leading stocks tend to sputter out rather quickly.

After a four-day correction by time that followed the Fed-driven rally of September 18, both the S&P and Dow are now coming into support of their hourly uptrend lines. This is annotated on the two charts below:





As the S&P and Dow run into their hourly uptrend lines today, observe the price and volume action closely. If leading stocks remain healthy, there's a good chance the indices will resume their two-week old uptrends by breaking out to fresh near-term highs. However, a firm close below the trendlines shown above could trigger a substantial wave of selling across the board. Overall near-term bias still favors the long side of the market, but a breakdown below the hourly trendlines would trigger a slightly bearish stance. Therefore, we're holding off on new trade entries until we see how the major indices behave on their tests of trendline support today. As for the intermediate-term, our stance remains neutral.

Open ETF positions:

Long - IBB, LQD
Short - (none)

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and Morpheus Trading Group, a trader education firm launched in 2001 that provides daily technical analysis of the leading ETFs and stocks. For a free trial to the full version of The Wagner Daily or to learn about Wagner's other services, visit MorpheusTrading.com or send an e-mail to deron@morpheustrading.com.