Another choppy session ended with mixed results last Friday, concluding a rather ugly week for the stock market. The Nasdaq Composite advanced 0.5%, but the S&P 500 and Dow Jones Industrial Average were lower by 0.4% and 0.5% respectively. The small-cap Russell 2000 slipped 0.6%, though the S&P Midcap 400 managed to gain 0.2%. All the major indices formed "inside days" last Friday, meaning their intraday trading ranges were contained within the previous day's highs and lows. For the week, each of the main stock market indexes completely surrendered their previous week's gains, which were among the biggest in years. Going into today's session, the balance of power has clearly returned to the bears.

Turnover in the NYSE eased 17%, as volume in the Nasdaq declined 24% below the previous day's level. Trading in both exchanges slipped just below average levels. Not surprisingly, market internals were mixed. Advancing volume in the Nasdaq exceeded declining volume by a margin of 2 to 1. The NYSE adv/dec volume ratio, however, was negative by the same margin.

Throughout last week, we discussed the benefits of trading or investing in ETFs with little or no correlation to the direction of the U.S. stock market. The DB Commodity Index (DBC), which we initially analyzed in the February 6 issue of The Wagner Daily, broke out to a new all-time high on Friday. A great example of an ETF that is capable of ignoring recent market weakness, we bought DBC on the breakout from a tight base of consolidation. Because it's comprised of a variety of commodities futures contracts, there is no concern of the breakout failing just because of weakness in the U.S. stock market. The move also occurred on double its average daily volume, confirming commdotities demand from institutional investors as well. The breakout is shown on the daily chart below:



In addition to buying DBC last Friday, we also entered the U.S. Natural Gas Fund (UNG) after it broke out above resistance of its weekly downtrend line. The bullish move in this ETF, which roughly mirrors the price of natural gas, is shown on the weekly chart below:



If the major indices manage to hold at support of their February 7 lows for the next several days, we could see another near-term bullish move back towards resistance of the recent highs. Though the main stock market indexes gave back all of the prior week's solid gains, their retracements from the January 23 lows to the February 1 highs still have not been very deep. Until we see the break of either last week's lows or the February 1 highs, be prepared for continued indecision and whipsaw action in the broad market. Investing and trading in ETFs with little correlation to the U.S. equities markets is a great way to both reduce your risk and realize profitable trading opportunities.

Open ETF positions:

Long - DBC, UNG
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.