Picking up where they left off last week, the major indices rallied sharply to score another round of solid gains. Stocks gapped higher in the morning, traded sideways throughout much of the afternoon, then moved to new intraday highs in the final minutes of trading. Definitively clearing resistance of its late January and early February highs, the S&P 500 climbed 3.4%. The Nasdaq Composite and Dow Jones Industrial Average posted matching gains of 2.6%. The small-cap Russell 2000 zoomed 4.1% higher and the S&P Midcap 400 Index jumped 4.2%, closing at a fresh year-to-date high. All the main stock market indexes finished at their best levels of the day.

Institutional investors climbed on board yesterday, causing turnover in both the NYSE and Nasdaq to rise back above average levels. Total volume in the NYSE surged 33% above the previous day's level, while volume in the Nasdaq ticked 17% higher. Market internals in the S&P and Dow were extremely positive, as advancing volume in the NYSE creamed declining volume by a whopping margin of 19 to 1. The Nasdaq adv/dec volume ratio was positive as well, but "only" by a ratio of 4 to 1.

Ramping up more than 4% yesterday, iShares Silver Trust (SLV) broke out above resistance of its 50-day moving average, as well as a multi-month downtrend line. Since we've been stalking SLV for a potential buy entry, we bought the breakout yesterday morning. The daily chart of SLV is shown below:



Although iShares Silver Trust is not as popular as SPDR Gold Trust (GLD), we bought SLV over GLD because silver has started showing relative strength to gold. Yesterday, for example, GLD gained just 2%. GLD also remains below its 50-day moving average, though it could easily move back above it with just one more day of decent gains.

Solar energy ETFs, which we discussed in yesterday morning's commentary, turned in a shining performance yesterday as well. Claymore Global Solar Energy (TAN) rocketed 14.2% higher, while Market Vectors Solar Energy (KWT) similarly rose 10.4%. Turnover in both ETFs also swelled to double the average daily volume levels, pointing to institutional demand supporting the sector. Now that the breakout in solar energy has been confirmed, we'll be monitoring these ETFs for potential buy entry on the first pullback. When not buying the initial breakouts of stocks and ETFs, traders are usually provided with secondary entry points by waiting for the first pullback to short-term support levels (such as the breakout levels or the 20-day moving averages). Yesterday's breakout in TAN is shown below:



Most emerging markets ETFs were big winners yesterday, as many of them broke out above significant resistance levels. iShares Emerging Markets (EEM), which we've been long in the ETF Portfolio Tracker since March 16, raced 7.9% higher to close at a fresh year-to-date high. The leveraged Emerging Markets Bull 3X (EDC), which we analyzed in our April 29 commentary, gained an astounding 21.5%! Unfortunately, we did not buy EDC on April 29 because its large opening gap put the ETF at resistance of its April highs, thereby reducing the risk/reward ratio of the setup. Nevertheless, kudos to anyone who grabbed that entry we pointed out and is still holding the position. We particularly like yesterday's breakout in iPath India Index (INP), which gapped above its 200-day moving average on better than average volume:



As with the solar energy ETFs, we are now monitoring the emerging markets ETFs for possible buy entry on the first pullback. With INP, a retracement to near yesterday's low would provide an ideal buy entry point, assuming the broad market holds firm as well. Resistance of the 200-day MA, which INP had been glued to over three preceding days, should now act as new support on a pullback.

We've had a few losing trades on the short side of the market over the past week, but each was entered with valid technical reasons that provided for very positive risk/reward ratios. Specifically, there was major resistance of the late Jan./early Feb. highs in the S&P 500, as well as pivotal resistance of the 200-day MA in the Nasdaq. Typically, such key areas of resistance would tip the odds towards a substantial pullback before moving higher, but that simply has not been the case.

While technical analysis is designed to slightly tip the odds of profitable trading in our favor, it obviously does not mean the market will always play by the rules. Bottom line is this market is so strong that it has ignored key resistance levels one could normally bank on. The fundamental reasons for the market's strength are basically irrelevant -- it simply is what it is. So, who are we to fight it? As we said in the April 27 issue of The Wagner Daily, "if the stock market proves us to be wrong, and the major indices surge above their February highs without pause, our egos are not too big to simply jump back in the long side of the market. Our continual focus is on trading what we see, not what we think!" We used valid reasoning from what we saw to give it a shot on the short side, it didn't work, so now it's time to move on the next opportunities. Sticking to our plan through both winning and losing streaks has been the key to our consistently profitable results over the years.

Open ETF positions:

Long - SLV, FXY
Short - (none)

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and MorpheusTrading.com, a trader education firm.