Stocks once again chopped around in a mostly sideways range before finishing modestly higher yesterday. Small caps turned in the best performance, causing the Russell 2000 Index to gain 1.2%. Both the Nasdaq Composite and the S&P Midcap 400 indices advanced 0.6%, while both the S&P 500 and Dow Jones Industrial Average rallied 0.5%. Although the Nasdaq gained a higher percentage than the S&P and Dow, the index actually showed relative weakness. When the major indices began to rally in the final hour of trading, the S&P and Dow both broke out above their morning highs, but the Nasdaq did not. Most of the broad market's gains were made in the final hour of trading, which enabled us to easily see which indices were showing the most relative strength and weakness to one another.

For the sixth consecutive day, turnover in both exchanges came in well below average levels. Total volume in the NYSE declined by 5%, while volume in the Nasdaq was 11% lighter than the previous day's level. Internals were positive, as advancing volume in the NYSE exceeded declining volume by just over 2 to 1. The ratio in the Nasdaq was similarly positive by just under 2 to 1. Yesterday, we mentioned it was positive that each of the past four "down" days were on lighter volume, but now we also had a session of lighter volume gains as well. Basically, it appears that most institutions are stepping aside ahead of this week's FOMC meeting. Beginning on Wednesday, the Federal Reserve Board will meet to discuss interest rates. There is a lot of speculation going into this meeting, so it seems that many traders and investors are taking a neutral stance ahead of Thursday's announcement on interest rates at 2:15 pm EDT.

In addition to the iShares Xinhua China 25 Index (FXI), which was discussed in yesterday's newsletter, several other international ETFs have also begun to show relative strength to the U.S. markets. Many of those same ETFs were also leading the U.S. markets higher when stocks were showing strength before the May selloff began. One such example is the iShares Mexico Index (EWW). When the domestic market began its downward spiral in mid-May, EWW followed suit. However, it has recovered much better than the U.S. major indices over the past week. Unlike the S&P 500 and Nasdaq Composite, both of which remain below their seven-week downtrend lines, EWW actually broke out above its downtrend line on June 21. The chart below illustrates this:

Despite having broken out above its downtrend line, EWW still has overhead resistance of its 200-day moving average. As such, we feel it is a bit risky to enter a new long position in EWW at current levels. Nevertheless, this ETF has been acting well versus the U.S. markets and will probably be among one of the top gaining international ETFs when/if the U.S. major indices eventually break out above their downtrend lines.

As for industry sector ETFs that are nearing a breakout of their downtrend lines, check out the U.S. Oil Fund (USO), which mirrors the price of crude oil. Based on yesterday's close, USO is within striking distance of its eight-week downtrend line. If it breaks out, it may be good for a short-term momentum trade up to resistance of its prior high from June 5:

Yesterday was another "inside day" in the broad market. This means that the major indices such as the S&P 500 and the Nasdaq Composite traded completely within their respective intraday ranges of the previous day. As such, there is really nothing new to report regarding changes in overall sentiment or market direction. As we illustrated in both the June 23 and June 26 issues of The Wagner Daily, both the S&P 500 and Nasdaq Composite remain stuck in a narrow range, right below resistance of their daily downtrend lines. We'll skip showing you those charts again in order to avoid being redundant, but suffice it to say that we continue to expect a very big move within the next few days. Again, the longer the recent volatility continues, the more powerful the eventual move will be. Remain alert and prepared to act in either direction when stocks finally make their move. Most likely, this won't happen until after the Feds announce their decision on interest rates this Thursday afternoon.

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.