Stocks kicked off the week with a session of divergence, as turnover fell across the board. The Nasdaq Composite cruised 0.3% higher, finishing at another fresh six-year high, but the broad-based S&P 500 declined by the same percentage. The Dow Jones Industrial Average similarly lost 0.2%. The small-cap Russell 2000 and S&P Midcap 400 indices were lower by 0.6% and 0.5% respectively. Price divergence between the major indices was prevalent throughout the entire day. Both the S&P 500 and Dow Industrials settled near the middle of their intraday ranges. The Nasdaq closed at its intraday high.

The Columbus Day holiday limited trading activity substantially. Total volume in the NYSE decreased 32%, while volume in the Nasdaq came in 23% below the previous day's level. Less than 900 million shares traded hands in the NYSE yesterday, making it the lightest volume of any full trading day this year. Like the closing percentage changes in the broad market, market internals were mixed. Advancing volume in the Nasdaq marginally exceeded declining volume by just under 3 to 2. The adv/dec volume ratio in the NYSE, however, was negative by 5 to 2.

Last week, we pointed out the StreetTRACKS Gold Trust (GLD) as an ETF we were stalking for a potential long entry. Specifically, we liked how it responded firmly to a bounce off support of its 20-day EMA on October 4. However, we wanted it to consolidate for at least one to two weeks before resuming its strong uptrend. With the rally that followed on October 5, it initially looked as if GLD might take off again, without consolidating first. But GLD gave up more than one percent yesterday, pushing it back down to the lower end of its October 5 range. Take a look at the daily chart of GLD below:



Yesterday's retracement was actually bullish because it should now enable GLD to form a longer base of consolidation from which to firmly break out to new highs. Without such a base of price support, any breakout attempt to a new high would have higher odds of failing. On the daily chart below, the descending red line marks resistance of the newly formed short-term downtrend (more easily viewed on an hourly chart). Ideally, GLD will move in tight, sideways range for at least the next several days before attempting to break out above the downtrend line from the October 1 high. If it does, we will consider buying GLD on a rally above its October 5. Waiting for a move above that day's high, rather than merely buying the first test of the newly formed downtrend line, is a good way to seek price confirmation.

Many of the leading international ETFs began to correct from nose-bleed territory yesterday, albeit only slightly. ETFs tied to a plethora of emerging markets have been among the strongest of all fund types since the U.S. stock market formed its low in mid-August. We've got our eyes on a few of them and will be pointing out their setups as they begin to pullback to solid support levels.

It's once again time for the quarterly festival of corporate earnings announcements. Earnings season "officially" kicks off with the release of quarterly results from Alcoa, Inc. (AA) before today's open. Over the next few weeks. a deluge of reports from leading companies will hit the wires. As always, expect wild gyrations and erratic price action in the broad market to result from any major earnings surprises. Be sure to check the reporting date of any individual stocks you enter in the coming weeks, as it's not advisable to gamble with a new trade entry directly ahead of a quarterly earnings report. Only when the position is already showing a substantial profit "buffer" do we consider holding a stock through earnings announcements. Nevertheless, the great thing about ETFs is that the diversification of their composition automatically limits risk exposure during news events such as quarterly earnings.

Open ETF positions:

Long - LQD, DUG
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.