Retaining all the gains of the previous day's advance, and then some, the main stock market indexes edged modestly higher yesterday. After opening slightly lower, stocks immediately reversed into positive territory, then consolidated in an extremely tight, sideways range throughout the rest of the day. Again taking the lead, the Nasdaq Composite tacked on another 0.4% to the previous day's 3.1% gain. The S&P 500 and Dow Jones Industrial Average registered identical gains of 0.2%. Small caps kept the bullish momentum going, as the Russell 2000 rallied 1.0%. The S&P Midcap 400 was higher by 0.3%. The major indices closed near the middle of their narrow intraday ranges.

Total volume in the NYSE declined 7%, while volume in the Nasdaq was 9% lighter than the previous day's level. Though we typically like to see "up" days accompanied by higher volume, lower volume consolidation days that follow an "up" day of large gains is actually bullish. This is because it indicates traders and investors are not quickly selling into strength of the preceding session. Conversely, higher volume during a tight-ranged day of consolidation would hint at bearish "churning."

Now that most of the broad-based indexes have broken out above their bases of consolidation, we are back in buying mode. However, since the strongest ETFs are now well above their breakout levels, and we've just sold a few positions into strength, we're now waiting for proper entry points to enter new positions.

ETFs that have not already broken out could be declared laggards, and are probably best avoided. Rather, we're focused on buying pullbacks to support in the trending ETFs with relative strength, just as we did with our buy entry into Claymore Global Solar Energy (TAN) a few weeks ago. Below are the charts of a few strong ETFs we're now stalking for pullback buy entries:







The S&P 500, Nasdaq Composite, Russell 2000, and S&P Midcap 400 indices have each reclaimed their 200-day moving averages, a generally encouraging sign for the longer-term view of the stock market. Yet, the popular barometer the general public follows, the Dow Jones Industrial Average, remains (barely) below its 200-day moving average. In actuality, an index comprised of just thirty blue-chip stocks is not a very accurate indicator of the state of the overall stock market. Nevertheless, public perceptions have a significant role in moving markets. As such, we feel it's important for the Dow to join the rest of the gang; otherwise, it's a very real possibility the Dow will keep further gains of the rest of the broad market in check.

Open ETF positions:

Long - OIH, 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.