Like the previous day, stocks meandered through another choppy, range-bound session of trading yesterday, but morning strength still enabled most of the major indices to close in positive territory yesterday. The major indices sold off on the open, reversed to move higher in the morning, then oscillated in a sideways to lower range throughout the rest of the day. By the closing bell, all the main stock market indexes except the Russell 2000 finished in the black. The Dow Jones Industrial Average advanced 1.1%, the S&P 500 0.9%, and the Nasdaq Composite 0.3%. Gaining 0.7%, the S&P Midcap 400 kept pace with the rest of the market, but the small-cap Russell 2000 slipped 0.4%. Showing relative strength, the S&P 500 and Dow Jones Industrials finished near their best levels of the day. The rest of the major indices closed in the upper third of their intraday ranges.

Total volume in the NYSE decreased 48% below the previous day's level, while trading in the Nasdaq similarly eased 42%. Although last Friday's volume levels were artificially inflated by the rebalancing of the Russell indexes, turnover across the board was still much lighter than average. In both exchanges, volume slowed to its lowest level of the past few weeks. Since the stock market is closed for a holiday this Friday, traders will probably start closing up shop on Thursday. This means trading could very easily remain below average levels until at least next week. Because light volume markets are notorious for being choppy and indecisive, an extra ounce of caution is suggested until after the holiday weekend has passed.

We continue to be focused on the newfound resilience and relative strength of the healthcare sector. Yesterday, iShares Nasdaq Biotech (IBB), which we're presently long, sold off to a 1.7% loss in the morning, alongside of broad market weakness, but reversed to close slightly higher. Even better was the performance of the Pharmaceutical HOLDR (PPH), which broke out above a key area of horizontal price resistance. Below is an updated daily chart of PPH, which we first analyzed in our June 26 commentary:



CurrencyShares British Pound Sterling (FXB), which tracks the price of the British Pound to the U.S. dollar, was in a protracted downtrend that began in late 2007, and technically ended at the beginning of last month. Over the past month, FXB has been consolidating in a tight, sideways range, holding firmly above support of its 20-day exponential moving average (EMA). In the coming days, we're stalking FXB for a potential breakout above the high of the range. The bullish setup is shown on the daily chart below:



On June 17, we bought PowerShares Agriculture Fund (DBA), when it pulled back and bounced off major support of its 50 and 200-day moving averages. Three days later, DBA gapped down below its 50 and 200-day MAs, nearly triggering our stop, but it snapped back into the previous range the following day. Since then, it hasn't done much, but DBA is still holding its 200-day MA, and has the potential to catch some strong bullish momentum if it reclaims its 50-day MA, which has converged with its 20-day EMA. Such a move would also correlate to a breakout above its four-week downtrend line. With a tightened stop just below the 200-day MA, an entry near the current price carries a very positive reward/risk ratio. Take a look:



As for the short side of the market, there are a few inversely correlated "short" ETFs that are looking good for potential buy entry. One such ETF is UltraShort 20+ year T-Bonds (TBT). Last month, TBT broke out above a lengthy period of sideways consolidation and rallied sharply. However, it has since pulled back to support of that breakout level, at its February 2009 high, which converges with key support of its 200-day MA. We like TBT for buy entry above yesterday's high, over the $51 area:



We also like the "bull flag" pattern forming on the daily chart of UltraShort Oil and Gas (DUG). After breaking out to reverse its downtrend earlier this month, DUG ran into resistance of its 50-day MA, then pulled back to support of its 20-day EMA yesterday. Now, if it rallies above yesterday's high, it will reclaim its 50-day MA, triggering a legitimate buy entry as well. The Energy Bear 3X Shares (ERY) has a very similar chart pattern as well. The daily chart of DUG is shown below:



Yesterday, our position in UltraShort Financials ProShares (SKF) hit its stop, but the ETF is roughly forming the right shoulder of a bullish inverse head and shoulders pattern. As such, we'll be keeping an eye on SKF today, just in case our stop was a few cents too tight, and our entry a bit too early. We have no problem re-entering the position if our original expectation proves to be correct. A rally above yesterday's high would break its short-term downtrend line, and would give us sufficient technical reason to jump back into the trade. The UltraShort Real Estate ProShares (SRS) is showing slightly more relative strength than SKF, and also looks good for potential re-entry above yesterday's high. Last week, we sold SRS into strength, netting a large profit, but the current pullback may provide us with an ideal re-entry point if resumption of the short-term uptrend is confirmed.

Open ETF positions:

Long - IBB, DBA, UNG
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.