Like the previous day, stocks meandered through the session in a choppy, see-saw fashion before finishing in slightly positive territory. This time, however, the Nasdaq lagged behind. The S&P 500 and Dow Jones Industrial Average posted identical gains of 0.4%, but the Nasdaq Composite ticked just 0.2% higher. Considering the tech-heavy Nasdaq more than doubled the gains of the S&P and Dow with its 1.5% advance on Tuesday, it was interesting that the Nasdaq showed such relative weakness yesterday. Small and mid-cap stocks turned in the best performance, as the Russell 2000 and S&P Midcap 400 rallied 0.6% and 0.9% respectively. The broad-based indexes settled near the top of their indecisive, intraday ranges.

Total volume in the NYSE increased 12% above the previous day's level, while volume in the Nasdaq rose 7%. The gains on higher volume technically enabled both the S&P and Nasdaq to register an "accumulation day," but intraday price action was certainly not very indicative of institutional buying. Turnover in both exchanges also remained well below 50-day average levels. Market internals were nominally positive. In both the NYSE and Nasdaq, advancing volume exceeded declining volume by a margin of less than 3 to 2.

The International sector comprised many of the top-performing ETFs yesterday. The main stock market indexes of the U.S. are more than ten percent below their 52-week highs, but ETFs from several global regions remain at or near their all-time highs. Within the international arena, Market Vectors Russia (RSX) was among the biggest of yesterday's gainers. Cruising 1.9% higher, RSX followed through on the previous day's bullish "hammer" candlestick pattern, breaking out above resistance of its hourly downtrend line in the process. As per our analysis in yesterday morning's Wagner Daily, the breakout caused RSX to trigger our buy entry as well. Presently, RSX is showing an unrealized point gain of seventy cents since yesterday afternoon's entry. We also remain long the Semiconductor HOLDR (SMH) and StreetTRACKS Gold Trust (GLD), both of which are also showing marked-to-market gains. We'll continue trailing stops higher on all open positions in order to protect profits and minimize risk.

Turning in an even better performance yesterday was the iShares Brazil Index (EWZ), which raced 3.6% higher yesterday. Bouncing off support of its 20-day exponential moving average after a gentle, one-week pullback, EWZ has a similar daily chart pattern to RSX. Barring any sudden, major weakness in the U.S. markets, both EWZ and RSX are now positioned to set fresh record highs in the coming days. On the daily chart of EWZ below, notice how the 20-day EMA acted as support on its pullback at the end of last month:



Also bucking the trend of the broad-based weakness lately has been the natural resources/metals and mining sector. Sporting a similar daily chart pattern to EWZ and RSX, the S&P Metals and Mining SPDR (XME) rallied sharply after touching support of its 20-day EMA yesterday. With global demand keeping this sector strong, expect XME to continue showing relative strength to the U.S. markets, even if the major indices head south again. It goes without saying that energy ETFs have also been incredibly strong, regardless of broad market conditions. The daily chart of XME is below:



Unfortunately for the domestic markets, banking stocks showed major relative weakness to the S&P, Dow, and Nasdaq yesterday. The Bank Index ($BKX) tumbled 1.7% yesterday and is now in danger of breaking down to a new multi-year low, below a key area of price support that has been in place throughout this year. The daily performance of the $BKX index is important to monitor, as the index is heavily weighted within the S&P 500. If the $BKX breaks down to a new multi-year low, it will undoubtedly weigh heavily on the main stock market indexes. the The precarious position of the $BKX Index is shown on the weekly chart below:



The charts of the S&P, Dow, and Nasdaq continue to look as though they could resume last week's weakness at a moment's notice. As we illustrated yesterday, the Nasdaq is still forming the right shoulder of a bearish "head and shoulders" pattern. The Dow Jones Industrial Average is forming a "bear flag" pattern below its 50-day moving average. The S&P 500 is also forming a "bear flag" pattern, and a move below yesterday's low will cause the index to crack support of its 50-day MA as well. "Lower lows" within the new descending trend channels have already been set by both the S&P and Dow. In the Nasdaq, a break of the May 23 low of 2,430 (the neckline of its head and shoulders) will cause that index to set a "lower low" as well. We're presently net long the stock market, riding momentum of the short-term bounce while it lasts, but our fingers are on the sell triggers, ready to reverse course at a moment's notice. A break below yesterday's lows in the S&P and/or Dow would provide ideal levels to re-enter short positions in the corresponding broad-based ETFs, such as the UltraShort Dow 30 ProShares (DXD) that we sold for a nice profit several days ago.

Open ETF positions:

Long - SMH, RSX, GLD
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.