Yesterday's action was a tale of two markets. Stocks drifted steadily lower throughout the first half of the day, then reversed to trend higher later in the afternoon. By the closing bell, all the major indices still finished moderately lower, but within the confines of their recent bands of price consolidation. The S&P 500 and Dow Jones Industrial Average, both down 1.7% at their intraday lows, closed with matching losses of just 0.4%. Halving the loss at its lowest level of the day, the Nasdaq Composite settled 1.3% lower. The small-cap Russell 2000 and S&P Midcap 400 indices fell 2.2% and 1.5% respectively. The Nasdaq Composite closed in the middle of its intraday range, as the S&P 500 and Dow Jones Industrials finished near the upper quarter of their ranges.

Total volume in the NYSE rose 70%, while volume in the Nasdaq increased 112% above the previous day's level. Although turnover picked up substantially from last Friday's painfully slow pace, turnover in both exchanges stayed well below 50-day average levels. Again, this is likely to be the case until after the New Year's Day holiday has passed. When overall volume levels eventually move back above average, the initial corresponding direction of the stock market will tell us a lot about the intentions of mutual funds, hedge funds, and other market-moving institutions. Until then, one simply cannot read much into the market's volume patterns throughout this holiday period.

In yesterday's commentary, we looked at the relative strength displayed by several gold and silver ETFs in last Friday's session. Ignoring the broad-based losses that occurred in yesterday's session, gold and silver followed through to build on the previous day's gains. The CBOE Gold Index ($GOX) rallied 3%, bringing its two-day gain to 8%. The 0.9% gain in SPDR Gold Trust (GLD) was less impressive, but was enough to cause GLD to breakout above closely-watched resistance of its five-month downtrend line. Its weekly chart is shown below:



Now that GLD is breaking out above its primary downtrend line, the next stop should be resistance of its September/October 2008 highs, at the $91 to $92 area. Prior resistance of the five-month downtrend line should now act as support on any pullback, but consider giving your protective stop a few points "wiggle room" below the trendline. Though we don't have a position in GLD, we own Market Vectors Gold Miners (GDX) instead; GDX advanced another 3.2% yesterday. We also continue to hold iShares Silver Trust (SLV), which matched yesterday's 0.9% gain of GLD.

In the December 23, 2008 issue of The Wagner Daily, we pointed out early signs of strength in the solar energy sector, and correspondingly added Claymore Global Solar Energy (TAN) to our watchlist. After a few more successive days of flat, narrow-range trading, TAN attempted to break out above key resistance yesterday. Though weakness in the broad market held the solar stocks back, TAN has a good possibility of showing leadership to the broad market when stocks eventually bounce. As such, we continue to monitor TAN for a potential breakout and buy entry. Even though its 50-day MA is just overhead, momentum from a breakout of such a tight consolidation should enable TAN to blow through that resistance level if it goes:



Taking an updated look at the charts of the main stock market indexes, we see the S&P, Dow, and Nasdaq once again bounced off lower channel support of their recent bands of consolidation. The blue horizontal line on each chart below illustrates the clear support levels of each index. Common ETF proxies of SPY, DIA, and QQQQ are shown, rather than the actual indexes:







Since yesterday's lows clearly correlate to obvious levels of support, our overall short and intermediate-term biases on the broad market remain cautiously bullish, as long as yesterday's lows are not violated. Further, since the major indices formed bullish "hammer" candlestick formations, closing prices above yesterday's highs could trigger the necessary bullish momentum to finally break out above resistance of the 50-day moving averages. Nevertheless, if any of the major indices close below the support levels shown above, we'll be forced to re-assess the market, as well as the possibility of jumping back on the short side of the market for more than just a daytrade.

Because it bears repeating, we'll conclude with the same thoughts... Since low volume markets are notorious for being whippy and choppy, 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, INP, FXI, SMH
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.