Stocks digested their recent gains for a second straight day, as the major indices remained in a fairly tight, sideways trading range. This time, the broad-based indexes finished fractionally higher. Both the S&P 500 and Nasdaq Composite eked out a 0.1% gain, as the Dow Jones Industrial Average advanced 0.2%. The Russell 2000 and S&P Midcap 400 indices rallied 0.2% and 0.4% respectively. It was the fourth consecutive day of gains for the small and mid-cap indexes. All the main stock market indexes closed in the upper third of their intraday ranges.

As the bulls like to see on consolidation days, turnover continued to recede. Total volume in the NYSE was 13% lower than the previous day's level, while volume in the Nasdaq declined 4%. Tuesday's monstrous rally occurred on higher volume. Trading subsequently eased on Wednesday and Thursday, both consolidation days. This is a bullish volume pattern, but it would be more convincing if the next substantial "up" day occurs on greater than average volume. It's been ten days since turnover in the Nasdaq exceeded its 50-day average level.

In the April 2 issue of The Wagner Daily, we illustrated that iShares Xinhua China 25 (FXI) had broken out above its 50-day moving average and five-month downtrend line. We also said that its relative strength should enable it to pull back less than the broad market on a correction, and rally more than the broad market on the up days. Yesterday, the S&P 500 gained only 0.1%, but FXI motored more than 4% higher. It also closed above the high of its April 1 breakout bar. This is shown on the daily chart below:



Since we bought FXI when it pulled back on April 2, we're already showing an unrealized gain of nearly 5 points. Again, our upside target is resistance of the 200-day MA, around the $158 area.

As a possible short sale, consider the CurrencyShares Euro Trust (FXE). With the U.S. dollar gaining strength, the euro has been getting weaker. On March 31, the euro (and FXE) tried to break out to a new all-time high, but the breakout quickly failed. The failed breakout has left a bearish formation on its daily chart. FXE has been clinging to support of its 20-day EMA for the past three days, but a breakdown below the three-day low could present a quick trading opportunity on the short side. A realistic price target would be support of the 50-day MA, so the trade would probably only have a 2 to 5 day time horizon. The daily chart of FXE is shown below:



Rather than selling short FXE, one could alternatively consider buying the PowerShares U.S. Dollar Index (UUP). It moves the same direction as the dollar, rather than the euro. The downside, however, is that UUP has a tendency to have erratic opening prices outside of its expected range. Just be aware of that when setting stops.

No changes to the picture of the broad market. Stocks are acting quite well since Tuesday's bullish intermediate-term transition. We expect an attempt for the stock market to make another leg higher in the next day or two. When it does, we'll be carefully watching the volume levels. We remain bullish on the near and intermediate-term trends, but bearish on the long-term.

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.