A broad-based rally yesterday morning faded throughout the afternoon, leaving most of the indices with only minor gains. The S&P 500 was trading 0.6% higher just before noon, but it drifted lower after failing to penetrate resistance of the previous day's high. The index finished with only a 0.2% gain. Both the Nasdaq Composite and small-cap Russell 2000 indices followed similar intraday patterns and eked out gains of only 0.1%. The Dow Jones Industrial Average showed relative strength by advancing 0.7% and finishing in the upper third of its intraday range. The S&P Midcap 400 closed 0.3% higher. As planned, we sold the remaining half position of the StreetTRACKS Gold Trust (GLD) when it tested resistance of its 50-day MA. We netted a gain of approximately 4.5 points on the trade.

Total volume in the NYSE declined by 6% yesterday, but volume in the Nasdaq was 1% higher than the previous day's level. Despite having gained on higher volume yesterday, we would not classify the Nasdaq as having had an "accumulation day." When an index surrenders most of its intraday gain and closes near the low of its range, it is typically bearish. Like the overall volume levels, market internals were mixed as well. In the NYSE, advancing volume exceeded declining volume by a margin of nearly 3 to 2. The Nasdaq ratio, however, was negative by nearly the same spread.

Over the past four sessions, the S&P 500 has been consolidating near its June 29 high, while the Nasdaq has given up a portion of that day's gain. It's positive that the S&P has been able to retain its recent gains and is building a new base of support, but the index still has not cleared resistance of its 50-day moving average. Notice how that moving average has, thus far, prevented the S&P 500 from building on its June 29 gain:

Even if the S&P manages to close above its 50-day MA, remember that resistance of the prior high from June 2 (marked by the dashed horizontal line) is also significant. Its seven-week downtrend line was broken on June 29, but the primary downtrend has not yet reversed into an uptrend. We cannot technically declare a reversal of the S&P's intermediate-term downtrend unless the index closes firmly above that June 2 high. Such an occurrence would represent the formation of a "higher high" to complement the "higher low" that was recently established. Support of its 200-day moving average just below its current price is positive, but it doesn't mean much until the index can overcome its prior high.

The small-cap Russell 2000 and the S&P Midcap 400 indices typically show relative strength and lead the other major indexes in a strong market. Conversely, both indices typically fall the hardest when stocks enter a period of correction. Because the price action of small and mid-cap stocks serves as an accurate market indicator, it's a good idea to monitor the Russell 2000 and S&P Midcap 400 indices on a regular basis. Taking a quick look at the daily charts of both the iShares Russell 2000 (IWM) and the S&P Midcap SPDR (MDY), you will notice that both ETFs are showing similar patterns to the S&P 500 in that they are stuck at their 50-day moving averages and remain below resistance of their June 2 highs.

Quarterly earnings season kicks into gear next week, so be aware of the exact corporate earnings dates for any new stock positions you enter in the coming weeks. As you probably already know, stocks often ignore technical patterns and exhibit highly erratic price action when companies surprise investors with better or worse than expected numbers. There are several web sites that enable you to search for corporate earnings dates, but we like the free earnings.com site.

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.