The Nasdaq snapped its three-day pullback yesterday, resuming the short-term uptrend that began last week. The other major indices tagged along, enabling strong gains to register across the board. The Nasdaq Composite zoomed 1.8%, as did the small-cap Russell 2000 Index. The S&P 500, Dow Jones Industrial Average, and S&P Midcap 400 indices each rallied 1.5%. Despite a significant retracement in the early afternoon that prevented the session from being a powerful "trend day," stocks recovered to close near their intraday highs.

Total volume in the NYSE swelled 10%, while volume in the Nasdaq similarly ticked 11% above the previous day's level. The broad-based gains on higher volume enabled both the S&P and Nasdaq to register a bullish "accumulation day" that was indicative of institutional buying. The increased trading activity was also a positive follow-up to the prior day's lighter volume losses. Still, turnover in both the NYSE and Nasdaq only marginally exceeded average levels. Market internals were firm. Advancing volume in the NYSE exceeded declining volume by nearly 4 to 1. The Nasdaq ratio was positive by just over 2 to 1.

On December 4, we bought the Pharmaceutical HOLDR (PPH) when it broke out above the upper boundary of its "bull flag" formation on the daily chart. Yesterday, PPH followed through with a solid rally up to resistance of its near-term high. A move above yesterday's high will correspond to a breakout above its October high, which should lead to further gains over the next week. Along with our long position in the iShares DJ Utilities Average (IDU), which is now showing an unrealized gain of approximately 5 points, PPH is one of the few industry sector ETFs showing relative strength by trading at or near its high. The bullish pattern in PPH is shown on the daily chart below:



In yesterday's commentary, we said that stocks are likely to remain in a sideways range until the December 11 Fed meeting. With resistance of the November 30 "swing highs" and support of the December 4 intraday lows in place, this is still the most probable scenario in the near-term. But one factor that could change the technical picture is a potential breakout of the S&P 500 above its 200-day MA. Take a look at this interesting scenario on the daily chart:



As you can see, the S&P attempted to move back above its 200-day MA on both November 14 and 30, but failed both times. Yesterday, the index closed right at its 200-day MA, meaning it will once again be testing key resistance of its 200-day MA. With both the Nasdaq and Dow back above their 200-day MAs, it would certainly be good for the broad market if the S&P can join them. However, note that the 50-day MA looms overhead at the 1,503 level. Therefore, it may be wise to restrain our buying enthusiasm until we see how institutional traders react to the S&P's test of its 50-day MA. If long the market, we'll be sure to be positioned in sectors with relative strength (utilities, health care, pharmaceuticals, and biotechs). The Gold/Silver ETFs and stocks also bear watching, as the sector could easily break out again. We continue stalking the iShares Silver Trust (SLV) going into today's session.

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.