Stocks continued to build on their recent gains yesterday, as the Dow set a new all-time high for the third consecutive day. The Nasdaq again showed relative strength by advancing 0.7%, the S&P 500 gained 0.2%, and the Dow crept higher by 0.1%. Small and mid-cap stocks made significant advances, enabling the Russell 2000 to gain 1.3% and the S&P Midcap 400 to rally 1.2%. Our long position in the Biotech HOLDR zoomed 1.5% higher, while the short positions in the Semiconductor HOLDR (SMH) and Utilities HOLDR (UTH) both moved lower. As we have been discussing, being simultaneously positioned on both sides of the market can be profitable, regardless of market conditions. The main element is just to ensure that you are long the ETFs with the most relative strength and short those with relative weakness to the broad market.

Total volume in the NYSE fell by 6%, while volume in the Nasdaq was 12% lower than the previous day's level. Even though the major indices did not gain on higher volume, the overall price to volume relationship over the past week has remained healthy overall. In both exchanges, advancing volume exceeded declining volume by a margin of nearly 2 to 1.

The S&P Midcap 400 Index, which we have been stalking for a potential move out of its multi-month range, appears to have finally broken out to the upside. Not only did it bust above the highs of its consolidation, but it also closed yesterday above its 200-day MA:

Because of the length of its prior consolidation, we are comfortable with buying the first pullback to the prior high in the S&P Midcap SPDR (MDY) or other ETF that mirrors the S&P Midcap 400.

The Biotech Index ($BTK) outperformed with a 1.2% gain yesterday, pulling our long position in the Biotech HOLDR (BBH) along with it. As you can see on the chart below, BBH closed at a fresh 52-week high:

Although not apparent on the chart above, BBH closed at its highest price level since March 21. Since all of the major components are acting well, we plan to trail a stop to protect the gain in BBH, as opposed to setting an actual "price target."

Quarterly earnings season unofficially starts next week. Monday is slow, but next Tuesday will see earnings from Dow component Alcoa Aluminum (AA) and Nasdaq giant Genentech (DNA). More companies will be reporting their earnings immediately thereafter. Unfortunately, the quarterly earnings season often brings many surprises that can adversely affect clear technical chart patterns, but the broad market remains healthy. In particular, we like how the Nasdaq and Russell 2000 are both making valiant efforts to "catch up" with the Dow and S&P strength.

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.