Stocks roared back from their losses of the past several sessions yesterday, enabling the major indices to finish right at resistance of last month's highs. After gapping higher on the open, the broad market grinded higher throughout the first half of the day, then continued to build on its gains after the 2:15 pm Fed announcement. As widely anticipated, the Federal Open Market Committee (FOMC) not only left interest rates unchanged, but also avoided hinting at future rate increases. The stock market's knee-jerk reaction was quite positive. The Nasdaq Composite rocketed 2.8% higher, while the S&P 500 and Dow Jones Industrial Average scored identical gains of 2.9%. The small-cap Russell 2000 and S&P Midcap 400 indices climbed 2.4% and 2.1% respectively. Breaking the recent pattern of choppy and indecisive trading, it was also refreshing that stocks trended smoothly intraday for the first time since July 29. All the main stock market indexes finished at their best levels of the day.

Confirming yesterday's massive gains was a sharp spike in volume across the board. Total volume in the NYSE swelled 13% above the previous day's level, while volume in the Nasdaq similarly ticked 19% higher. Although the S&P 500 logged a bearish "distribution day" by declining on higher volume on August 4, it's quite positive that stocks followed up Monday's bout of institutional selling with a powerful round of institutional buying. It was the fifth such "accumulation day" within the past two weeks. Since the broad market formed its intermediate-term bottom in the middle of last month, there have been six "accumulation days (higher volume buying)," and just one "distribution day (higher volume selling)." Without even looking at a single chart pattern, this ratio tells us the bulls have clearly had the upper hand recently.

Ten of the twenty-five major industry sectors we monitor on a daily basis bagged impressive gains of more than three percent yesterday. However, very few of these sectors have nice daily or weekly chart patterns that would excite us to enter new positions. Most industries, including semiconductors ($SOX), are still trading below resistance of their intermediate and long-term downtrend lines. In this situation, one would have no reason to expect a lot of upside potential until the sector breaks out and starts to absorb some overhead supply. Other industries, such as banking ($BKX) and transportation ($DJT), are stuck in choppy, sideways trading ranges that we don't want to touch.

Considering this situation, what sector ETFs should an astute trader look to buy if bullish momentum continues in the near to intermediate-term? In addition to the biotechnology ETFs, which we've been discussing regularly for the past several weeks, we're now beginning to see relative strength and breakouts in the pharmaceutical and healthcare industries, both of which are "sister sectors" to biotechnology. Let's take a look at a few ETFs in those sectors. First, check out the daily chart of iShares U.S. Healthcare Sector Index (IYH), comprised of 139 different companies in the healthcare, biotech, and medical devices sectors:



As the dashed horizontal line indicates, IYH just broke out above a key band of price resistance. The breakout also coincided with a breakout above its 200-day moving average (the orange line). Much higher than average volume over the past two days confirms the institutional buying interest. Per Intraday Trade Alert to subscribers, we bought IYH when it rallied above its 200-day MA yesterday. The S&P Healthcare SPDR (XLV) has a similar chart pattern, but did not exhibit a similar volume surge this week.

Another related ETF that looks good right now is iShares U.S. Medical Devices (IHI). This ETF broke out above a similar band of horizontal price resistance, but is already well above its 200-day MA. Furthermore, it is less than 2% below its all-time high. On the daily chart below, notice how yesterday's volume surged to more than 4 times its average daily level on the breakout:



Even the lackluster Pharmaceutical HOLDR (PPH), comprised primarily of large-cap, old-school pharmaceutical companies, is showing signs of life. It's still trading near multi-year lows, but is about to break out above resistance as well. We prefer IYH or IHI because their chart patterns are better and they have some more dynamic, faster-growing companies in their portfolios. High-growth companies typically lead a sector that is showing relative strength. But regardless of which ETF you prefer, it's clearly evident that the entire healthcare arena is under institutional accumulation. If buying anything right now, strongly consider having at least a few healthcare ETFs (biotech, pharmaceutical, or medical devices) in your portfolio. In addition to our new position in IYH, we also remain positioned in the S&P Biotech SPDR (XBI). Biotech-specific ETFs, including tickers such as XBI, BBH, IBB and PBE, are the strongest of the healthcare-related ETFs.

As for the broad market, most of the major indices closed at a pivotal area of resistance. Last week, the S&P 500 and Nasdaq Composite both tested resistance of their "swing highs" that were set on July 23. They backed off immediately after doing so, resulting in the July 31 - August 4 pullback. Yesterday, however, both indexes fully recovered the preceding three days of losses to close right at last week's highs. Since this is the second test of their "swing highs" in less than a week, we think there are pretty decent odds the major indices will break out to new intermediate-term highs within the next several days. The pivotal levels of "swing high" resistance to watch are: S&P 500 - 1,291, Nasdaq Composite - 2,353, Dow Jones Industrial Average - 11,698. If the major indices close firmly above these levels, we could see a strong burst of upside momentum in the near-term. Although the long-term trends are still pointing down, let's take advantage of strength from the stock market's counter-trend bounce, which is all we can call it right now, while it lasts.

Open ETF positions:

Long - UWM, UUP, XBI, IYH, TAN, EWH
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.