Stocks bounced back from the previous day's correction, as strength in the tech stocks helped the Nasdaq gain 0.5% yesterday. The S&P 500 and Dow Jones Industrial Average both lagged behind by closing only 0.1% higher, but small and mid-cap stocks kept pace with the Nasdaq. Both the Russell 2000 and S&P Midcap 400 indices rallied 0.6%. The major indices were showing stronger gains throughout most of the afternoon, but a modest wave of selling in the final hour of trading caused many sectors to finish near the middle of their intraday ranges.

Due in part to the Columbus Day holiday, volume in both exchanges came in at its lightest levels in more than a month, marking the third consecutive day of lower turnover. Total volume in the NYSE was 20% lighter than the previous day's level, while the volume level in the Nasdaq fell by 10%. The sharp decline caused volume to come in well below average levels in both the NYSE and Nasdaq. As such, we can not lend much credence to yesterday's gains. The Nasdaq Composite managed to finish at a new five-month high, but it was essentially another consolidation day in both the S&P and Dow.

For those who may be monitoring our open ETF positions, let's take an updated look at the technical state of each of them. Yesterday, three of the four moved in the right direction. Our short position in the Utilities HOLDR (UTH) moved modestly lower, while our long positions in the Biotech HOLDR (BBH) and StreetTRACKS Homebuilders (XHB) both registered solid gains. The Semiconductor HOLDR (SMH), which we are short, moved against us a bit, but is still showing an unrealized gain since our entry. Of the four, BBH is clearly showing the best price action.

In yesterday's session, BBH surged 3 points higher and closed at its highest level in nearly seven months. Presently, the position is showing a marked-to-market gain of more than 5 points, but it has not yet reached our upside price target. Just to refresh your mind, we are looking for a 76.4% Fibonacci retracement of the downward move from the November 2005 down to the May 2006 low. This equates to a price target around the $195 area. We are trailing a stop along the way to protect our unrealized profit, but the relative strength in BBH tells us there is probably a little more juice left in this play. From an educational perspective, this setup has been a good example of how strong the upward momentum can be when a stock or ETF finally breaks out above a level of horizontal price resistance after numerous failed attempts. When that break of resistance converges with a break of the 200-day moving average, it generates even more momentum. Looking at the daily chart below, notice how far BBH has rallied since breaking out above resistance less than two weeks ago:

Our other long position, XHB, is showing an unrealized gain of 4% since our September 13 entry, but its price action has not been as positive. Like BBH, the XHB setup was a reversal of a downtrend as well, but the subsequent upward momentum has been lacking. This is likely due to the fact that the breakout above resistance in XHB was not as clearly defined or as lengthy as it was with BBH. Within the next day or two, XHB should test resistance of the high of its recent consolidation, about 60 cents above yesterday's close. If it breaks out above the range, great, but if it stalls or deliberates, we will sell the remainder of the position into strength. We already sold partial shares of the position into strength more than a week ago, near the same price level. The chart of XHB below shows how the position has been stuck in a consolidation since our initial entry:

Our remaining two positions, UTH short and SMH short, are both showing small unrealized gains, but have been choppy since our entry points. Both have merely been oscillating in a sideways range, but we are patiently waiting for the bearish setups to follow through to the downside. As you may recall, we shorted UTH after it broke support of its 50-day MA, then rallied back up and probed above resistance of said moving average. So far, it is still showing a "lower high" and closed yesterday back below its 50-day MA. We still expect UTH to roll over from here and at least test its September low:

SMH has been showing similar relative weakness to UTH since our entry, but has been even choppier. Resistance of the 200-day MA remains overhead, but now the 50-day moving average is rising up and will soon provide support. We are no longer feeling as confident about this setup as when we first entered, but we must be patient to let the trade play itself out. With stops, we are of the belief that the best policy is merely to "set it and forget it." Having such a mindset prevents you from worrying about every tick that goes against you. After we pull the trigger and enter a trade, we know it will either be a win, lose, or draw, but we don't fret over the outcome of any individual trade. We know that consistently profitable trading results from understanding the "numbers game." As long as your average winner is more than your average loser, and your win percentage is around 50% or better, you will be consistently profitable in the long-term.

As a reminder, quarterly earnings season kicks into gear this week. Key reports to watch are Genentech (DNA) and Alcoa (AA), both reporting today, Genzyme (GENZ) and Costco (COST), both due Thursday, and General Electric (GE) on Friday. Check the earnings calendar on your favorite financial website for a complete list of earnings dates so that you are not caught off guard with any positions.

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.