The tech-heavy Nasdaq shook off a weak start to score its sixth consecutive day of gains yesterday, as traders bided time ahead of next week's New Year's Day holiday. Other main stock market indexes also showed resilience, but lagged slightly behind. The Nasdaq Composite opened near the previous day's low, meandered sideways throughout the morning, drifted higher in the afternoon, and eventually settled with a 0.4% gain. The S&P 500 reversed an early 0.6% loss to finish 0.1% higher. The Dow Jones Industrial Average was flat, while small and mid-cap stocks were mixed. The Russell 2000 continued to show impressive relative strength by advancing 0.3%, but the S&P Midcap 400 closed lower by the same percentage. For the fourth straight day, the broad market closed near its intraday high.

Not surprisingly, turnover was much higher than on the Christmas Eve session. Total volume in the Nasdaq rose 66% above the previous day's level. Volume in the NYSE similarly ticked 58% higher. Considering the stock market closed three hours early the prior trading day, a substantial volume increase was virtually assured. However, volume in both exchanges was merely half of the 50-day average levels. As with every week between Christmas and New Year's Day, expect a minimal number of shares to change hands until the new year begins next week.

In the December 20 issue of The Wagner Daily, we pointed out the bullish setup in the PowerShares Clean Energy ETF (PBW). Specifically, we noted that PBW was poised to breakout to a new all-time high, and was also showing the most relative strength of more than 500 ETFs on our daily watchlist. Since then, PBW has performed like a champ. In each of the past five days, PBW has marched steadily higher, closing at a fresh record high each time as well:



Very few ETFs are trading at all-time highs right now. Aside from PBW, energy ETFs such as the Oil Service HOLDR (OIH) and the S&P Energy SPDR (XLE) come to mind. But only PBW has finished at a new high for five straight days. Since it is arguably the strongest ETF in the entire stock market right now, any moderate pullback in PBW presents a low-risk buying opportunity. If a decent retracement comes after the new year, we'll be stalking PBW for a potential buy point near support of its recent breakout level ($26.50 to $27 level). Though it may be tempting, avoid chasing PBW for an entry at current levels, especially given the present lack of volume in the markets. Instead, add it to your watchlist of strong ETFs to monitor into the beginning of 2008.

Another bullish ETF to add to your watchlist is the S&P Metals and Mining SPDR (XME), which closed just shy of a new high yesterday. After briefly moving to a new high on December 10, XME initially failed the breakout and dropped to support of its 50-day MA on week later. However, XME bounced perfectly off its 50-day MA and has already rallied back to test its prior high. Less than half a point away from a record high, XME could take off if bullish momentum remains into the new year. Just don't jump the gun by buying ahead of the breakout level:



The StreetTRACKS Gold Trust (GLD) gapped above its two-day high yesterday, confirming the recent breakout of the "wedge" pattern we discussed in yesterday's commentary. The strength in spot gold also caused the Market Vectors Gold Miners ETF (GDX) to rally 3.0% and break out above both its intermediate-term downtrend line and 20-day EMA. This is illustrated on the daily chart of GDX below:



Though we planned to lay low until the new year, we informed subscribers via intraday e-mail alert that we were buying GDX yesterday afternoon. Because GDX is more closely correlated to the price of gold than the direction of the overall stock market, it is less prone to being whipped around than other stock ETFs in this light volume environment. As for the general stock market, be prepared for low turnover indecision into the last three trading days of the year. Be on guard against overtrading in either direction, for it is notoriously easy to churn your brokerage account when the market lacks the presence of institutional support.

Open ETF positions:

Long - GDX
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.