As we often see when the major indices are out of sync with one another, yesterday was choppy and sloppy. The major indices gapped down on the open, rallied into positive territory in the first hour, then dropped back down to their intraday lows. Stocks recovered off their lows and traded in a narrow, sideways range throughout the afternoon before finishing modestly higher. The S&P 500 edged 0.1% higher, while both the Nasdaq Composite and Dow Jones Industrial Average rallied 0.2%. The small-cap Russell 2000 and S&P Midcap 400 indices each posted 0.5% gains. All of the broad-based indexes closed in the upper third of their intraday ranges, but getting there was a bit tricky.

Turnover was mixed yesterday. In the NYSE, total volume ticked 1% higher than the previous day's level, but volume in the Nasdaq declined by 8%. Since the S&P gained only 0.1% on a mere 1% increase in volume, we can't really classify yesterday as a confirmed "accumulation day," especially since market internals were barely positive. In both exchanges, advancing volume marginally exceeded declining volume by a ratio of only 1.1 to 1. Overall, we view yesterday's broad market action as an attempt to find support after the previous two days of selling. The direction of today's market trend will likely have a significant bearing on whether or not the recent correction continues.

The Semiconductor Index ($SOX), which we discussed extensively in yesterday's newsletter, probed below support of its 50-day moving average before closing right on it. The $SOX is now at a "make it or break it" level in which it will either snap back off the 50-MA, or collapse below it. Obviously, its outcome will have a major bearing on where the market goes from here. For that reason, pay particularly close attention to how the $SOX behaves today:

One sector we haven't discussed in a long time is Oil and Oil Service. The last time we discussed the energy sector was more than a month ago, when we covered our short position in the S&P Select Energy SPDR (XLE) for a nice profit. Since then, most of the oil-related ETFs have been in a choppy range, hence the lack of technical commentary, but that situation may be changing. Crude oil futures rallied more than $3 per barrel yesterday, pulling along most of the oil ETFs with it. More importantly, they are now at or have just broken above their downtrend lines from the August highs. Per intraday e-mail alert to subscribers, we bought the Oil Service HOLDR (OIH) as it broke out above its 50-day moving average yesterday. The break of the 50-day MA also coincided with a rally above its primary downtrend line. The trade is already showing a gain of more than a point since our entry, but we believe it has quite a bit more upside:

The 20-day moving average on OIH should now act firmly as support, so a protective stop should not be much below that level. As for an upside target, we expect momentum of the trendline break to carry OIH at least to its 200-day moving average, presently at $142.36. Although several of the oil-related ETFs are breaking out above their downtrend lines, the U.S Oil Fund (USO) is one that should be avoided. There appears to be a divergence between the price of crude oil and the oil-related stocks, with the former showing significant relative weakness. Since USO roughly mirrors the price of crude oil, it is showing relative weakness to OIH, XLE, and the other energy ETFs. Because USO is still near its low, it is riskier to buy because we do not yet have confirmation that a bottom has been formed:

In addition to OIH, XLE, and USO, there are a handful of other energy-related ETFs to choose from. We suggest you compare the relative strength in each of them in order to determine which one offers the best potential entry.

Earnings season is in full swing, with Google (GOOG) being the latest behemoth to announce its quarterly earnings result. After the close of trading yesterday, GOOG proudly proclaimed that their latest quarterly profit nearly doubled over the same quarter last year. Traders reacted positively, sending shares of GOOG seven percent higher in after-hours trading. Because GOOG is considered a market leader, the bullish reaction to their report could help the Nasdaq today. However, the Nasdaq 100 futures were last seen trading only a few points higher in the post-market. Three different Dow components are scheduled to report their quarterly earnings today, so the blue-chip index could be more volatile than usual. Today is also monthly options expiration day, which often causes erratic price movement in 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.