Stocks chopped around in indecisive fashion yesterday, but eventually closed higher across the board. Showing considerable relative weakness for a change, the Nasdaq Composite was down 1.4% at its intraday low, but the index recovered to finish 0.3% higher. The S&P 500 and Dow Jones Industrial Average performed much better yesterday, as neither index dipped into negative territory the entire session. The S&P 500 climbed 1.7% and the Dow Jones Industrial Average gained 1.2%. The small-cap Russell 2000 and S&P Midcap 400 indices advanced 0.5% and 0.9% respectively. The S&P and Dow closed near their best levels of the day, while the Nasdaq settled only in the upper third of its intraday range.

Total volume in the NYSE grew 22%, as volume in the Nasdaq increased 19% above the previous day's level. The higher turnover in both exchanges caused the S&P 500 and Nasdaq Composite to score a bullish "accumulation day," but the presence of institutional buying was more convincing in the NYSE than the Nasdaq. In both the NYSE and Nasdaq, trading jumped to well above 50-day average levels. The Nasdaq had its most active day in more than five months, though the clear relative weakness in the tech-heavy index was a little concerning.

In the May 5 issue of The Wagner Daily, we pointed out the upside breakout in iPath India Index (INP), along with other emerging markets ETFs. Since then, INP has consolidate in a tight range, contained within the intraday range of its May 4 breakout. This has led to the approximate formation of a "bull flag" pattern, just above new support of its 200-day MA. Because of this, we're now stalking INP for potential buy entry above yesterday's high of $39.67. Such a rally above the upper channel of the "bull flag" should lead to a resumption of the uptrend from the recent breakout. If the setup triggers, our protective stop will be below the 20 and 200-day moving averages. The setup is shown below:



Zooming approximately 8% higher yesterday, the U.S. Natural Gas Fund (UNG) broke out above resistance of a four-month downtrend line. Confirming the breakout was a volume spike to more than double its average daily volume. For those who like to trade the momentum of short-term trend reversals, UNG now offers a pretty solid risk/reward ratio. Moreover, there is also no risk of blindly trying to catch a bottom without first having bullish price and volume confirmation. The daily chart of UNG is shown below:



On the chart above, check out the volume pattern of the past five days. During that period, there have been four "up" days and one "down" day. All four of the "up" days have been on increasing volume ("accumulation"), while the sole down day was on lighter volume. This, of course, is the type of volume action we want to see when buying an ETF that is reversing its downtrend. However, it's important to realize this is ideally suited to being a short-term trade to take quick profits, as there remains a lot of overhead supply. Although the 50-day MA is still overhead, we bought UNG after it gapped up yesterday morning. The break of the downtrend line, combined with the bullish volume pattern, gave us sufficient technical reason for buy entry, despite the 50-day MA. Even if UNG quickly stalls after running into its 50-day MA, our entry price is low enough that we can still close the trade for a small profit or scratch.

The 200-day moving average of the Nasdaq Composite, which we've discussed several times over the past two weeks, remains a very possible point of contention for the broad market. Though the index has managed to close above that level in each of the past three days, we're not out of the woods yet. On the daily chart below, notice how the 200-day MA is acting like a magnet, putting pressure on further gains in the Nasdaq. If the index falls to close below its low of the past three days (below 1,729), it could trigger a wave of sell orders on fears of the 200-day MA. As such, consider keeping tight trailing stops on any Nasdaq-related positions you may be carrying. Conversely, a firm breakout above yesterday's high of 1,770, well above the 200-day MA, would be equally bullish:



Today, we "officially" will hear the results of the recent "stress tests" the Fed applied to nineteen of the largest U.S. banks. A bit of leaked news initially led to a positive reaction in the banking sector yesterday, but it's still prudent to be prepared for any shocks to the system.

Open ETF positions:

Long - SLV, UNG, 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.