Showing a bit of indifference to last week's rally, the Nasdaq registered its third straight day of losses yesterday. The intraday price action was much like the previous day, as stocks began the day lower, halfheartedly attempted to recover at mid-day, then drifted back down to the lows in the late afternoon. Both the S&P 500 and Nasdaq Composite shed 0.7%, while the Dow Jones Industrial Average lost 0.5%. Curiously matching Monday's losses, the small-cap Russell 2000 and S&P Midcap 400 indices were lower by 1.0% and 0.4% respectively. The main stock market indexes again closed near their intraday lows.

Although turnover was tracking slightly higher throughout most of the day, total volume in both the NYSE and Nasdaq finished 2% lower than the previous day's levels. Despite three consecutive losing sessions in the Nasdaq, it's positive that higher volume accompanied only one of those three days. Mutual funds, hedge funds, and other institutions have not yet shown a firm interest in supporting last week's gains, but they also have not shown signs of heavy selling into strength. Both the S&P and Nasdaq have had just one "distribution day" (losses on higher volume) since the stock market began to rally off its lows in the last week of November.

Since peaking in early November, both the spot gold and silver commodities have been correcting off their highs. The correction has correspondingly caused both the proxy StreetTRACKS Gold Trust (GLD) and iShares Silver Trust (SLV) to correct down to their 50-day MAs. Between the two, GLD has shown slightly more relative strength than SLV during the pullback. When SLV touched its 50-day MA three days ago, it marginally violated its prior low from November 19. GLD still held above its prior low. Nevertheless, the chart pattern in SLV is a bit more clear, as it is now poised to break out above its one-month downtrend line after bouncing off key support of its 50-day MA:



A breakout above the downtrend line shown above could set in motion a resumption of the primary uptrend in SLV. An ideal long entry for us would be on the breakout above yesterday's high. A protective stop can be placed just below the 50-day MA. One word of caution with this setup, however, is that the prices of gold and silver are often affected by changes in the value of the U.S. dollar. As such, I would also keep an eye on the price of the CurrencyShares Euro Trust (FXE), which may be in the process of correcting lower. If it does, it could negatively impact the prices of gold and silver.

Generally, it seems that traders and investors are in "wait and see" mode ahead of next Tuesday's meeting of the Federal Reserve Board. Until then, it seems likely that the major indices will merely oscillate in a non-committal sideways range. The Nasdaq has retraced about half of last week's gains, while the S&P and Dow have each retraced about a third of their gains. As such, one might expect yesterday's lows, or a bit below those lows, to mark the lower boundaries of a near-term trading range. The November 30 "swing highs" would clearly mark the upper channel resistance levels. As long as stocks hang out in that range, there's no sense getting too aggressive on either side of the market. When the eventual move out of the range comes, probably after December 11, we'll be ready to go with the best ETF setups on either the long or short side of the market, depending on the direction of the trend resolution.

Open ETF positions:

Long - IDU, PPH
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.