After opening near the flat line, the major indices oscillated in a narrow, sideways range throughout most of the day. A modest rally in the final hour of trading lifted the S&P 500 and Nasdaq Composite, which rose 0.6% and 0.7% respectively, to their fifth straight day of gains. The Dow Jones Industrial Average similarly closed 0.8% higher. The small-cap Russell 2000 continued to outperform with a 1.1% gain, as the S&P Midcap 400 increased 0.7%. The main stock market indexes settled at their intraday highs.

Although stocks logged respectable gains last Friday, they did so on the lightest turnover in weeks. Total volume in the NYSE receded 23%, while volume in the Nasdaq limped in 18% lighter than the previous day's level. In both exchanges, volume fell back below 50-day average levels. Despite the broad market's percentage gains, the significantly slower pace of trading made for a relatively dull session. The S&P 500 advanced in every session last week, but only two of those days were backed by the confirmation of higher volume. Overall, last week's gains were primarily the result of a lack of sellers, rather than an abundance of bulls. This is notable because a string of light-volume gains can be easily wiped out by just one day of heavier volume selling amongst institutions.

Last Thursday, we pointed out the relative strength and bullish setup in iShares Emerging Markets (EEM). Though EEM has moved slightly higher since then, a closer look at ETFs of country-specific emerging markets revealed two ETFs with more relative strength. While EEM continues to test resistance of its recent consolidation, both Market Vectors Russia (RSX) and iShares Brazil (EWZ) made convincing moves to new highs within their ascending trends last week. Below are daily charts of both ETFs, followed by a two-week "percentage change chart" that illustrates their relative strength versus EEM:







This week, corporate earnings season kicks into high gear. A plethora of market-moving companies, ranging from Google (GOOG) to Goldman Sachs (GS) to Intl. Business Machines (IBM), are scheduled to trumpet their latest quarterly results in the coming days. The relatively light volume levels experienced last week were likely the result of mutual funds, hedge funds, and other institutions waiting on the sidelines until the upcoming batch of earnings results can be assessed. As such, be prepared for higher volatility and indecision this week.

In our October 9 commentary, we illustrated how the S&P, Nasdaq, and Dow each closed right at key short-term resistance of their late-September highs. Going into today, the same resistance remains in effect for the Nasdaq, which closed just a hair below the previous day's high. The S&P 500 exceeded its late-September high, but not by a convincingly wide margin. The Dow managed to finish the week at a new 52-week closing high, but remains below last month's intraday highs. Basically, those same resistance levels remain a potential point of contention in the upcoming week. Until the main stock market indexes convincingly rally above their September highs, an extra ounce of caution is required on the long side of the market, especially due to last week's light volume on the way up, as well as the slew of upcoming earnings reports.

Open ETF positions:

Long - DGP, FCG, UNG, DBB
Short - MOO

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.