Stocks rebounded off the previous day's losses yesterday, but resistance of the 1,280 level on the S&P 500 triggered a bit of selling in the broad market later in the afternoon. The Nasdaq Composite gained 0.8%, as the small-cap Russell 2000 Index rallied 1.0%. The S&P 500 recovered all of its previous day's loss by advancing 0.6%. Both the Dow Jones Industrial Average and the S&P Midcap 400 closed 0.7% higher. The gains were looking better at mid-day, but the bears arrived on the scene in the final ninety minutes of trading and sent the market lower. Each of the major indices finished near the middle of their intraday ranges, pointing to a bit of indecision into today's session.

Perhaps the biggest positive of yesterday's session is that turnover rose slightly in both exchanges. Total volume in the NYSE increased by 6%, while volume in the Nasdaq was 5% higher than the previous day's level. The gains on higher volume made yesterday a bullish "accumulation day," one of rare days in which volume actually increased in sync with prices. However, many leading stocks curiously traded inversely to the broad market and showed relative weakness. Market internals were also positive, but not by a wide margin. Advancing volume exceeded declining volume by a ratio of approximately 2 to 1 in both exchanges.

Over the past several days, we have focused most of our analysis on specific industry sectors that have been showing relative strength or weakness to the broad market. On the upside, we liked Gold & Silver, Pharmaceuticals, and Utilities. On the downside, we liked just about every other sector. Transports have been lagging the market, as have any stocks related to technology. In yesterday's session, the Gold & Silver Sector Index ($XAU) was again one of the top performers, registering a solid 2.1% gain. As such, the iShares Silver Trust (SLV) rallied 3.5%, but the StreetTRACKS Gold Trust (GLD) gained only 0.7%. Since our entry only two days ago, SLV is showing a marked to market profit of nearly 7 points. We chose SLV over GLD because silver was showing more relative strength than gold. This is easily identified by comparing the daily chars of SLV and GLD below. Notice how SLV has already broken out above its prior high from mid-July, but GLD is still below it:

Since we've spent a lot of time discussing the industry sectors we like best, let's take an updated look at the broad market today. The most important thing to watch is the 1,280 resistance level on the S&P 500. In yesterday's session, the S&P probed above that level on an intraday basis, but closed just below it. As the chart below illustrates, this is clearly a pivotal area of resistance:

If the S&P can firmly close above the 1,280 level, it would mandate an extra ounce of caution on the short side. But until that happens, our bias does not change, especially considering the overall poor performance of leading stocks over the past several days. The Nasdaq Composite remains in much worse shape, as the index is not even close to breaking out above its prior high from July 3. As short-term technical traders, we don't have subjective opinions on which direction stocks will go. Rather, we simply trade in the same direction as the overall trends. It has been a bit choppy over the past week, but the major indices still remain in primary downtrends. Until that changes, it makes no sense to try to be a hero and call the bottom of the market.

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.