The major indices scored another day of sharp gains yesterday, as the S&P 500 moved back above both its 200- and 50-day moving averages. Stocks trended modestly higher throughout the first half of the day, then accelerated into high gear during the final two hours of trading. The Nasdaq Composite rallied 1.6%, the S&P 500 1.5%, and the Dow Jones Industrial Average 1.3%. Small caps caught fire, sending the Russell 2000 Index 2.8% higher. The S&P Midcap 400 cruised to a 2.1% gain. All the main stock market indexes finished near their intraday highs for the second straight day.

Volume backed off slightly in both exchanges. Total volume in the NYSE declined 4%, while Nasdaq trading came in 8% below the previous day's level. Although the S&P and Nasdaq both registered a bullish "accumulation day" on Wednesday, turnover slipped below 50-day average levels yesterday. However, market internals improved. Advancing volume in the NYSE exceeded declining volume by more than 5 to 1. The Nasdaq ratio was positive by 4 to 1.

Yesterday, our long setup in the iShares Silver Trust (SLV) triggered when the ETF rallied above its one-month downtrend line and 20-day EMA. Our upside price target is a test of the November high, while our protective stop is below the 50-day MA. Yesterday, SLV also showed relative strength by rallying twice the percentage of the StreetTRACKS Gold Trust (GLD). Assuming SLV holds above the break of its intermediate-term downtrend line, we could expect a resumption of the primary long-term uptrend:



Because the iShares DJ Utilities Average (IDU) had moved to a gain that was equivalent to three times our original risk, we trailed our stop much tighter yesterday. On its morning pullback, IDU hit that adjusted trailing stop, locking in a gain of more than 4 points since our November 19 long entry. From here, we expect IDU to consolidate or form a "bull flag" pattern. If it does, we can look to re-enter on a resumption of the uptrend that may follow.

The Oil Service HOLDR (OIH) was one of the biggest gaining sector ETFs yesterday, and its price action was also significant on a technical level. After falling below its 50-day MA in early November, OIH surged back above it yesterday. The rally also coincided with a breakout above its 7-week downtrend line from the October high. This is shown on the daily chart below:



Prior resistance of the 50-day MA and intermediate-term downtrend line should now act as the new support in OIH. Therefore, any pullback to near those levels would present a low-risk buying opportunity in OIH. To guard against a failed breakout, we would consider keeping a protective stop just below yesterday's low, which converges with support of the 20-day EMA.

Though we do not advocate "bottom fishing" of buying stocks and ETFs near their lows, it's notable that the Semiconductor Index ($SOX) may be forming an intermediate-term bottom. Over the past two weeks, the index has formed a "higher low" and "higher high." Yesterday, the $SOX closed above its 20-day EMA for the first time since mid-October. This potential trend reversal is shown on the daily chart of the $SOX below:



The potential bottoming action in the $SOX may create short-term momentum trading opportunities in the various semiconductor ETFs, such as the Semiconductor HOLDR (SMH). It's reasonable to expect the $SOX to make a run for its 50-day MA, but we would consider selling any semiconductor ETFs into strength if the index does so. When trading stocks and ETFs near their highs, the lack of technical resistance enables one to hold positions much longer, but trend reversals off the lows must be managed more proactively because of the overhead supply that remains.

Open ETF positions:

Long - PPH, SLV
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.