Not surprisingly, stocks meandered through another slow session of trading last Friday, as investors and traders remained in holiday mode ahead of New Year's Day. Oscillating in a narrow range throughout the entire session, the major indices began the day higher, drifted down to slightly negative territory at mid-day, then begrudgingly moved back up in the afternoon. The Nasdaq Composite gained 0.4%, the S&P 500 advanced 0.5%, and the Dow Jones Industrial Average finished 0.6% higher. The small-cap Russell 2000 and S&P Midcap 400 indices posted identical gains of 1.3%. The main stock market indexes settled near their intraday highs.

Volume levels were obviously higher than they were during Wednesday's holiday-shortened session, but remained well below average. Total volume in the NYSE increased 28%, while volume in the Nasdaq rose just 15%. Expect turnover to remain at depressed levels until at least the new year, as traders won't begin returning to their desks until the end of this week. Market internals were slightly bullish. Advancing volume in the NYSE exceeded declining volume by a margin of 5 of 2. The Nasdaq adv/dec volume ratio was positive by less than 3 to 2.

While most of the stock market was in hibernation last Friday, the CBOE Gold Index stealthily surged 5%, aided by a 2.7% gain in the price of the spot gold commodity. In recent months, both spot gold and gold mining stocks have traded erratically and in a wide range, making it difficult to stay with any positions. However, this situation may be changing. After a 15% run in its eight preceding days, SPDR Gold Trust (GLD) ran into resistance of its primary downtrend line on December 17. GLD pulled back only nominally in the days that followed, and its trading range tightened up. Then, last Friday, GLD resumed its newfound strength, closing above its 200-day moving average, and right at resistance of its five-month downtrend line. On the long-term weekly chart below, notice how GLD, which follows the price of spot gold, closed right at its primary downtrend line:



If GLD closes above its December 17 high of 86.91, it will have confirmed a breakout above its primary downtrend line. Such a move would likely generate considerable bullish momentum that could propel GLD back to test its all-time high in the coming months. Though it's too early to jump to any definitive conclusions, we highly recommend keeping an eye on gold this week. We have a sneaky suspicion weakness in the U.S. dollar could aid in leading gold to a major breakout, but we'll trade what we see, not what we think.

Alongside of spot gold, individual gold mining stocks have also been displaying bullish price action. Market Vectors Gold Miners (GDX), a popular ETF proxy of a basket of gold mining stocks, broke out above a tight band of consolidation and motored more than 5% higher last Friday. This is shown on the daily chart of GDX below:



On the chart above, notice how the 10-day moving average (the purple dotted line) acted perfectly as support throughout last week. This commonly occurs whenever an ETF or stock enters into a steady trend. We also liked the constructive price action in GDX, as its trading range really tightened up from recent months. Within the next day or two, we expect a test of the December 17 "swing high." If GDX powers through that resistance level, it will represent three significant "higher highs" and "higher lows" since its October 2008 bottom. Per Intraday Trade Alert to subscribers of The Wagner Daily, we bought GDX last Friday, after it broke out above the high of its recent consolidation. Presently, the trade is showing an unrealized gain of 2.5% (nearly a point) since our entry. If GDX rallies above its December 17 high, we'll subsequently trail our protective stop higher, in order to remove risk from the trade.

Over the intermediate-term, silver has been lagging gold. Specifically, it is closer to its 52-week low, and is still well below its 200-day MA. However, in the short-term, we've noticed silver has begun to show relative strength. As such, we also bought a position in iShares Silver Trust (SLV) last Friday, after it pulled back and bounced off support of its 20-day exponential moving average. Though we don't advocate new ETF positions in the broad market during this slow period, we like that silver and gold has shown a low correlation to the price action of the overall market. GDX and SLV join our current positions in INP (India), FXI (China), and Semiconductors (SMH).

As we mentioned last week, low volume markets are notorious for being whippy and choppy. As such, this is not the time to be placing big bets on ETFs closely correlated to the direction of the broad market. Instead, make productive use of your time by conducting an honest year-end review of your trading operations. What did you do right in 2008? What did you do wrong? How will you improve on the areas that need improvement? Write it all down and incorporate it into a firm trading plan that will carry you into the new year. Undoubtedly, it was a challenging year for many traders and investors, but don't waste energy dwelling on past mistakes; the past cannot be changed. Rather, take a deep, sincere look at why you made the decisions you made. Doing so will surely pay big dividends in 2009!

Open ETF positions:

Long - GDX, SLV, SMH, INP, FXI
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.