Not surprisingly, the S&P 500 bounced off support of its 20-day exponential moving average and intermediate-term uptrend line yesterday, enabling stocks to recover a lot of last week's losses. The Nasdaq Composite climbed 1.8%, the S&P 500 gained 1.1%, and the Dow Jones Industrial Average rallied 1.0%. The small-cap Russell 2000 and S&P Midcap 400 gained 1.8% and 1.2% respectively. All the main stock market indexes closed near their intraday highs.

Unfortunately for the bulls, turnover receded in both exchanges, preventing the S&P 500 and Nasdaq Composite from scoring an "accumulation day." Total volume in the NYSE dipped 5%, while volume in the Nasdaq similarly declined 4% below the previous day's level. Trading in the NYSE was the lightest volume day of the year. Further, it was the twenty-ninth consecutive day that volume registered below its 50-day average level. Clearly, institutions have been showing reluctance at participating on the buy side of the stock market's intermediate-term rally off the March lows.

Two weeks ago, we interpreted the gold and silver commodities as finding major support of their long-term uptrends. As such, we bought the iShares Silver Trust (SLV) two times. Support of its prior lows from March and early April gave the setup a positive risk/reward both times. Nevertheless, vicious opening gap ups caused SLV to hit our stops on two successive occasions. Since then, we've been monitoring the price action of both SLV and the StreetTRACKS Gold Trust (GLD). Apparently, we were just a bit early on our entry attempts, as price ranges have tightened up, and both ETFs are now poised to breakout above their intermediate-term downtrends, which will enable them to resume their long-term uptrends.

Between the two commodities, silver (SLV) continues to show more relative strength than gold (GLD). On its daily chart, notice how SLV broke out above both its 20-day EMA and intermediate-term downtrend lien yesterday:



If SLV moves above yesterday's high, it should at least confirm a reversal of near-term momentum. At the least, SLV should move up to resistance of its 50-day MA, presently around the $179 level. A tight stop below yesterday's low would enable the play to maintain a low risk. If SLV moves below yesterday's low, it would represent a false breakout of the intermediate-term downtrend line. In such a situation, it's good to bail out very quickly!

GLD is showing relative weakness to SLV because it remains below both its 20-day EMA and hourly downtrend line. This tells us SLV has greater profit potential and lower risk of a bearish reversal than GLD. Still, we like how the trading range of GLD has tightened up over the past few days. A rally above the high of the past three days would shove GLD back above its 20-day EMA, as well as its intermediate-term downtrend line from the March 2008 high. Take a look:



Comparing the two charts of SLV and GLD, you can quickly see that SLV has been showing more strength than GLD. This is a good example of the importance of always comparing the various ETF choices within a given sector (as discussed thoroughly in my upcoming book, Trading ETFs, scheduled to be published by Bloomberg Press in July of this year). If the precious metals follow through on their relative strength in the coming days, we may buy SLV. Even though the first two attempts led to negative outcomes, those entries were completely independent of the current chart patterns. Unless the situation dramatically changes, SLV has better profit potential and lower risk than GLD.

As for the broad market, we are seeing a tradeable bounce off the 20-day EMA and intermediate-term uptrend line of the S&P 500. However, unless last week's highs are taken out, we must remain cognizant of the possibility of a "lower high" being set, followed by a break of support. We presently have a bearish position with one broad-based ETF (DXD), but have noticed that select leading stocks are still showing bullish chart patterns. Being nimble and willing to adapt to changing market conditions is the key to profitability right now.

Open ETF positions:

Long - DXD, UUP
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.