A worse-than-expected earnings report from securities broker Morgan Stanley yesterday morning pressured the major indices on the open, but stocks once again showed grand resiliency and reversed their early losses. The main stock market indexes subsequently chopped around in a sideways range throughout the rest of the day. Closing 0.5% higher, the Nasdaq Composite maintained its incredible string of gains. However, the S&P 500 and Dow Jones Industrial Average registered modest losses of 0.1% and 0.4% respectively. The small-cap Russell 2000 climbed 0.7%, as the S&P Midcap 400 rose 0.4%. Showing late-day indecision, the S&P 500 settled in the middle of its intraday range. The Nasdaq finished slightly above the middle of its range and the Dow closed in the bottom quarter of its range.

Turnover was mixed. Total volume in the NYSE was 11% lighter than the previous day's level, while volume in the Nasdaq was on par with the previous day's level. Market internals were slightly better than Tuesday's readings. Advancing volume in the Nasdaq exceeded declining volume by 2 to 1. The NYSE adv/dec volume ratio was positive by less than 3 to 2.

After several weeks of chop, the SPDR Gold Trust (GLD) is looking interesting again. Three days ago, GLD gapped above resistance of its 50-day moving average, and closed well above it. Since then, it has been consolidating in a tight, sideways range. A rally above the high of the past three days could lead to another substantial leg up in the shiny commodity. This is shown on the daily chart of GLD below:



Although GLD is currently in a bullish short-term trend, the big picture over the past six months appears rather indecisive on the daily chart. But a look at the longer-term weekly chart removes the noise, and shows the formation of a "symmetrical triangle" that has been developing. This is annotated on the weekly chart below:



Annotated by the blue trendlines, the symmetrical triangle has developed following a steady rise that began with the lows of November 2008. This pattern consists of two converging trendlines that form the shape of a tapering flag. This pattern typically represents a horizontal shape, rather than one of an uptrend or downtrend. A symmetrical triangle can be either bullish or bearish, depending on the direction of the preceding trend. However, the pattern generally leads to a continuation of the dominant trend. Since the preceding trend from November 2008 through February 2009 was a steady uptrend, odds would indicate an eventual up-side breakout above the upper channel resistance of the symmetrical triangle. By using the shorter-term daily chart to guide our potential entry, on a breakout above the three-day consolidation above the 50-day MA, one can enter the position in anticipation of further upside that eventually breaks out above the triangle. If that happens, a test of its all-time high, set in March of 2008, should quickly follow.

Because commodity ETFs are frequently whippy and indecisive in the short-term, it often makes sense to buy GLD on a major pullback that breaks obvious levels of support. Still, because of the bullish weekly chart pattern, a positive reward-risk ratio can still be obtained through buying a breakout above the three-day high of GLD, around the $94 level. Such an entry could be confirmed by higher volume that should accompany such a breakout. Even if the breakout starts to fail, one can simply scratch the trade with a quick exit, and wait for more price confirmation. Those who like the leveraged flavor of gold ETFs might consider buying Gold Double Long (DGP) or ProShares Ultra Gold (UGL) instead. The silver ETFs have a similarly bullish short-term pattern, but are showing relative weakness in the longer-term trends.

Open ETF positions:

Long - 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.