After beginning the week in pullback mode, stocks concluded the holiday-shortened week with a broad-based round of impressive gains. The Nasdaq Composite tacked on 3.9%, the S&P 500 3.8%, and the Dow Jones Industrial Average 3.1%. Small and mid-cap stocks rocketed higher. The Russell 2000 and S&P Midcap 400 indices ramped up 5.8% and 5.5% respectively. A majority of last Thursday's gains resulted from an opening gap up in the broad market. The major indices subsequently drifted sideways throughout the remainder of the day, though a late-day push enabled stocks to finish at their intraday highs.

Driven by positive, surprise news in the banking sector, total volume in the NYSE rocketed 39% higher. Turnover in the Nasdaq increased 17% above the previous day's level. Trading in the NYSE rose back above 50-day average levels, but Nasdaq volume remained lighter than average. Regardless, both the S&P and Nasdaq clearly registered a bullish "accumulation day," a very positive follow-up to a few days of price retracement. Considering the session preceded a three-day weekend, the large gains combined with overall volume levels equated to a rather bullish session.

Last Thursday, the Internet HOLDR (HHH) rallied to close firmly above its 200-day moving average, a long-term indicator of support or resistance, for the first time since December of 2007. Clearly, this indicates a change in the long-term bias of the sector. The breakout of HHH to close above the 200-day MA, as well as its highest level of the year, is shown below:

Presently, our long position in HHH is showing an unrealized gain of 3.2 points (nearly 10%) since our March 23 entry. We bought HHH a few weeks ago because it was one of the first ETFs to show relative strength by rallying to its 2009 high. Though the breakout above the 200-day MA makes HHH one of the few candidates for longer-term investing, we entered the trade as a short to intermediate-term position. As such, our original price target is just a few points higher. The stop is currently just below the 50-day MA (the teal line), but we will soon adjust it higher, to be closer to the 20-day EMA (the beige line).

Another of our positions looking good, albeit with a different chart pattern, is Claymore Global Solar Energy (TAN). Last week, it gapped up to break out above the high of a bullish consolidation pattern, and is now testing the area of its 2009 highs. Based on this pattern, and the relative strength of the sector, TAN could become a market-leading ETF in the coming week:

Most of the time, trading ahead of holiday weekends is marked by dull price action and lackadaisical volume levels. But the fact that last Thursday's session consisted of large gains on solid turnover reminds us that anything can happen ahead of holidays. The strong advance enabled the major indices to close at their highest levels since the current rally began. However, the S&P 500 and Dow Jones Industrials remain below resistance of their prior highs from February 2009. This week, there's a good chance both the S&P and Dow will test those February highs, which are shown on the two daily charts below:

Since the dashed horizontal lines on the charts above mark significant resistance of the February 2009 highs, you may want to set price alerts on your trading software, so that you're instantly notified if the S&P and/or Dow test their February 2009 highs. Doing so is important because the February highs could easily give the broad market the perfect excuse for a substantial pullback. In late March, we warned about the Nasdaq 100's February high leading to a pullback, and that's exactly what happened on the first test of its February high (the index has since broken out to a new 2009 high). Therefore, a test of the February 2009 highs could provide an ideal exit point to sell any short-term positions into strength, or at least trail protective stops more tightly.

Open ETF positions:

Long - HHH, TAN, ERX, USO, UGA, UDN, SLV
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.