The major indices posted their third straight day of gains yesterday, as another session of higher volume gains pointed to more institutions returning to the market. Stocks jumped higher out of the starting gate, then trended higher throughout the morning. The broad market gave back some of its gains in the afternoon, but the main stock market indexes still finished above the middle of their intraday ranges. The Nasdaq Composite ramped up 3.3%, the S&P 500 2.9%, and the Dow Jones Industrial Average 2.8%. Small and mid-cap stocks returned to their positions of leadership. The Russell 2000 motored 4.9% higher, as the S&P Midcap 400 gained 4.3%.

Total volume in the NYSE surged 25% higher, while volume in the Nasdaq similarly swelled 23%. The higher volume gains enabled the Nasdaq to score its third straight "accumulation day," a very positive sign for the market indeed. The S&P 500 has risen in faster trade in two of the past three sessions. This week's bullish volume patterns indicate mutual funds, hedge funds, and other institutional players are gradually re-acquiring an appetite for risk. Because institutions are responsible for more than half of the stock market's average daily volume, institutional buying interest is crucial in order for rallies to be sustainable.

Rallying to close above their March 26 highs, thereby setting new "swing highs," the S&P 500, Nasdaq Composite, and Dow Jones Industrials have technically entered back into short-term uptrends. More notably, both the Nasdaq Composite and Nasdaq 100 indices finished above their February 2009 highs, causing both indexes to enter into new intermediate-term uptrends. The S&P and Dow are still below their February highs, and may take a while until they manage to follow suit, but it's positive that the index with the most relative strength led the way by moving into a new intermediate-term uptrend yesterday. The intermediate-term trend change in the Nasdaq is shown below, on the daily chart of PowerShares QQQ Trust (QQQQ), an ETF proxy for the Nasdaq 100 Index:



With QQQQ entering into a new intermediate-term uptrend, it technically triggers a buy in the tech-heavy ETF. However, notice that QQQQ only closed above its February high by a few cents, not a wide enough margin to confirm the breakout. Therefore, if buying QQQQ at current levels, be sure to keep a tight stop to protects against a failed breakout. Alternatively, wait for more confirmation before buying, such as ensuring QQQQ holds above that new $31.68 support level for the first thirty minutes of today's trading.

As the overall market continues to act better, more ETFs are gradually coming onto our radar as solid buy candidates. Because the pullback in financials was very short-lived, the bullish consolidation in the banking sector is hinting at another leg higher in the near-term. If that happens, Regional Bank HOLDR (RKH) should break out above a key area of horizontal price resistance. This is shown on the daily chart below:



Because all the HOLDRS ETFs trade only in increments of 100 shares, subscribers with small accounts could alternatively consider SPDR Regional Banking (KRE) or S&P Financial SPDR (XLF). However, RKH has a slightly better chart pattern, and has been showing a bit more relative strength than KRE or XLF.

Within the realm of International ETFs, several Emerging Markets ETFs are now breaking out above key resistance levels. This list includes: iShares Brazil (EWZ), iShares Emerging Markets (EEM), iShares Xinhua China 25 (FXI), and iPath India Index (INP). Below is a daily chart of EWZ, which just broke out above a major area of horizontal price resistance yesterday:



In addition to the ETFs mentioned above, iShares Medical Devices (IHI), which is now testing resistance of its "swing high," remains on our watchlist. The Energy ETFs we discussed in yesterday's newsletter all raced higher yesterday, benefiting our open positions in Direxion Energy Bull 3x (ERX), U.S. Oil Fund (USO), and U.S. Gasoline Fund (UGA). We anticipate further strength in energy shares, so we'll keep our stops a bit loose for now. Claymore Global Solar Energy (TAN) tested the high of its short-term consolidation yesterday, and could garner a lot of upside momentum if it clears the $8 area. Internet HOLDR (HHH), which we bought on March 23, finished at its highest closing price since last October.

Open ETF positions:

Long - USO, UGA, ERX, UDN, SLV, HHH, TAN
Short - (none)

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.