Getting off to a negative start, stocks gapped substantially lower to start yesterday's session, but the market quickly stabilized. The major indices drifted higher into mid-day, then held in a tight, sideways range throughout the rest of the day. Reversing early weakness has been the stock market's modus operandi in recent weeks, but the major indices finished with mixed results this time. The Nasdaq Composite turned an intraday loss of 0.7% into a closing gain of 0.2%. However, the S&P 500 and Dow Jones Industrial Average finished slightly in the red; the S&P slipped 0.3% and the Dow lost 0.4%. The small-cap Russell 2000 and S&P Midcap 400 registered identical losses of 0.3%. The S&P and Nasdaq settled near the upper quarter of their intraday ranges, as the Dow closed just above the middle of the it's range.

Total volume in the NYSE declined 42%, while turnover in the Nasdaq was 18% lighter than the previous day's level. Though volume typically eases in the first session following a "quadruple witching" day, trading in the NYSE also receded below its 50-day average level for the first time in two weeks. This Wednesday afternoon, the Federal Open Market Committee (FOMC) will announce their latest stance on interest rates and economic policy. Until then, expect volume to be on the light side. Institutions usually are not inclined to make big bets ahead of important economic events.

Gold and silver ETFs, which recently broke out above key resistance levels, opened sharply lower yesterday morning, but at support of their recent "swing lows." This created a buying opportunity for traders who missed the initial breakout entries, and also prompted some traders to add to their existing winning positions. In our case, we took advantage of the pullback to enter a new position in Market Vectors Gold Miners (GDX). While we're already positioned in Gold Double Long (DGP), which tracks the movement of the spot gold commodity (roughly times two), the portfolio of GDX is comprised of individual gold mining stocks. Since gold mining stocks have been showing considerable relative strength to the actual spot gold commodity lately, we've been looking for a low-risk entry point into GDX, to complement the DGP position. The "percentage change chart" below compares the relative price performances of SPDR Gold Trust (GLD; an unleveraged spot gold ETF) and GDX, since the start of September:



On yesterday's open, GDX gapped down to test and "undercut" support of its 20-day exponential moving average, which happened to converge with its prior "swing low" as well. When GDX subsequently reversed to a new intraday high, less than two hours later, we sent an Intraday Trade Alert to subscribers, informing them we were buying GDX. Subsequent price action was encouraging, as GDX continued moving higher into mid-day, held in a narrow range, then closed near its intraday high. Presently, in today's pre-market session, GDX is trading more than 2% higher. If the pre-market strength persists into the open, GDX will already be on its way back to its prior high, which we anticipate will soon be broken as well. The daily chart below illustrates the technical reason behind yesterday's buy entry into GDX:



In yesterday's commentary, we said we planned to buy First Trust Natural Gas (FCG) on a pullback to its 10-day moving average. Although it acted as anticipated, by retracing to its 10-day MA in the morning, then recovering in the afternoon, FCG missed our buy limit order by just 3 cents. While we sometimes tweak our buy trigger price to pay a bit higher than originally expected, we intentionally did not do so this time around, as FCG was showing slight relative weakness to the broad market during its late morning recovery. As it turns out, FCG improved into the close, but still finished the day with a 1.8% loss. We'll continue monitoring the price action of FCG for potential buy entry, though we now do NOT want to see a violation of yesterday's low.

This Wednesday afternoon, the FOMC will announce their latest stance on interest rates and economic policy. Most economists expect the Fed to leave rates untouched, while also avoiding any verbage on policy that could spook the market. Nevertheless, this does not mean the market will smoothly sail through any announcement. As many traders and investors know, the stock market has a tendency to be quiet ahead of most FOMC meetings, and extremely whippy and volatile immediately thereafter. As such, we're not in a hurry to jump in a bunch of new positions over the next few days. Rather, we plan to lay low, focusing on managing our existing positions, each of which is showing an unrealized gain, rather than entering new ones.

Open ETF positions:

Long - DGP, GDX, DBB
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.