The major indices followed through on the heels of Tuesday's Fed-inspired gains yesterday, as the Nasdaq Composite closed above its 50-day moving average for the first time since June 19. After trending higher for a second straight day, the S&P 500 advanced 0.3%, the Dow Jones Industrial Average 0.4%, and the Nasdaq Composite 1.2%. Strong gains in the software and internet sectors helped fuel the relative strength of the Nasdaq. The small-cap Russell 2000 and S&P Midcap 400 indices registered matching gains of 0.7%. Each of the main stock market indexes closed within the upper quarter of its intraday range.

Institutional activity was light yesterday, causing trading to recede below the previous day's levels. Total volume in the NYSE declined 14%, while volume in the Nasdaq came in just 4% lower than Tuesday's level. Since stocks have scored five days of higher volume gains within the past two weeks, it was not surprising, nor negative, that turnover eased yesterday. In the Nasdaq, advancing volume exceeded declining volume by a solid margin of just over 2 to 1. The NYSE adv/dec volume ratio was marginally positive.

If you missed our original buy entry into S&P Biotech SPDR (XBI) last week, and have been looking for an ideal spot to enter, now may be the time to do so. Yesterday morning, XBI pulled back to touch support of its 10-day moving average, but reversed to close flat and at its high of the day. The same thing happened on July 30. The following day, XBI gapped up to resume its uptrend and close at a new high. On the daily chart below, we've circled the touch of 10-day MA support that subsequently led to a new high in XBI:



The chart above shows how strongly trending stocks and ETFs often resume their uptrends after coming into support of their 10-day moving averages. However, if you're not already long, it's also important to wait for a bit of price confirmation before immediately jumping in to buy on the test of the 10-day MA. In this case, we would want XBI to rally above the high of the past two days before buying. That basically equates to a rally above the $68 level.

In addition to the biotech and healthcare ETFs, which we analyzed in yesterday's commentary, you may want to put PowerShares Water Resources Portfolio (PHO) on your buy watchlist. This unique ETF has been consolidating for the past two weeks, and is currently above both its 20 and 50-day moving averages. Just a small gain in today's session will push PHO above the high of its consolidation, triggering a legitimate breakout buy entry. Take a look:



Don't forget about the bullish pattern in the Broadband HOLDR (BDH), which we analyzed in the August 4 issue of The Wagner Daily. At the time, we illustrated how BDH was poised to break out above horizontal price resistance on its daily chart and break out above resistance of its multi-year downtrend line. Yesterday, it crept above both levels, but only by a few pennies. In today's session, BDH may convincingly follow-through on its bullishness. Because Qualcomm (QCOM) represents an approximate weighting of 50% in BDH, be sure to check out the price action in that individual stock before buying BDH.

Over the past several days, we've been discussing the key resistance levels of the July "swing highs" in the major indices. Yesterday, the Nasdaq Composite became the first of the main stock market indexes to break out to a new "swing high." In the process, it also moved back above its 50-day moving average. This is shown on the daily chart below:



The S&P 500 and Dow Jones Industrial Average both closed at new "swing highs" as well, but did not close above resistance of their intraday highs of July 23. Nevertheless, a small rally above yesterday's highs would do the trick. With the S&P and Dow trading at such pivotal resistance levels, traders eyes' will certainly be focused on how these indices act as they test yesterday's highs. If all the indices get in sync with each other by breaking out above their recent consolidations, as well as their 50-day MAs, it could certainly change the overall bias of the stock market to a decidedly more bullish one.

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.