Another choppy day left most stocks little changed ahead of this week's meeting of the Federal Reserve Board. The major indices broke out to new intraday highs just after mid-day, promptly fell to new lows only an hour later, then recovered slightly in the final two hours of the session. The S&P 500 lost 0.1% for the second consecutive day, while the Nasdaq Composite gained 0.2%. The Dow Jones Industrial Average was unchanged, but the small-cap Russell 2000 and S&P Midcap 400 indices showed relative strength again, rallying 0.6% and 0.4% respectively.

Total volume in the Nasdaq declined by 4%, but turnover in the NYSE was 2% higher than the previous day's level. Although the S&P 500 declined on higher volume, both the small percentage of the gain and the minimal volume increase enabled the S&P to avert a bearish "distribution day." The Nasdaq's lower volume gain tells us that institutions remained largely on the sidelines. Not surprisingly, market internals were mixed. Declining volume in the NYSE marginally exceeded advancing volume by a ratio of 1.1, but the Nasdaq was positive by a margin of 1.3 to 1.

We are presently long the StreetTRACKS Gold Trust (GLD), which is consolidating above an 8-month downtrend line, but the iShares Silver Trust (SLV) is setting up for a low-risk entry point as well. Five days ago, SLV gapped up and broke out above resistance of both its 50-day moving average and its prior high from January 3. Since then, it hasn't done much, but has been holding above the breakout level:



As long as SLV remains above convergence of its 50-day MA and January 3 high, the setup offers a good risk/reward ratio. If it falls back below the 50-day MA by more than a point or so, you can quickly sell the position for a small loss. However, the upside potential is much greater than a than the one-point risk. If the breakout holds, it could eventually make a run at its prior high from December 2006. When the dollar amount of the potential profit is much greater than the capital risk, a trade is said to have a highly positive risk/reward ratio. By focusing on such trades, one can still realize a substantial bottom-line profit, even if the accuracy rate of the picks is not very high. In order to increase the odds of SLV breaking out above its January high, consider waiting for a breakout above its hourly downtrend line. A rally above that level should tip the odds in favor of further upside. The downtrend line is illustrated on the 60-minute chart below:



As for the broad market, nothing has changed on a technical level since yesterday's analysis of the major indices. Both the S&P and Dow are holding just above their 50-day moving averages, while the Nasdaq closed a hair below. The Feds kick off a two-day policy meeting today, the results of which will be announced tomorrow afternoon. Even though the FOMC is widely expected to leave interest rates unchanged, we don't anticipate a lot of action ahead of Wednesday's announcement. Nevertheless, remember to trade what you see, not what you think!

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.