A better-than-expected jobs report prompted stocks to open sharply higher last Friday, but continued intraday indecision and volatility caused the major indices to surrender a significant chunk of their opening gains. Less than half an hour after jumping approximately 2 percent higher out of the starting gate, the main stock market indexes swiftly nosedived, sending stocks all the way into negative territory by noon. The bulls returned in the afternoon, lifting the major indices to close well off their lows. In the dizzying session, tech stocks continued showing relative strength, enabling the Nasdaq Composite to finish 1.0% higher. However, the blue-chip Dow Jones Industrial Average advanced just 0.2%. The S&P 500 rose 0.6%. Given their recent trends of exhibiting relative weakness, small and mid-cap stocks turned in surprisingly impressive performances. The Russell 2000 and S&P Midcap 400 indices rallied 2.4% and 1.4% respectively. The Nasdaq settled at the middle of its intraday range, as the S&P and Dow finished a bit below the middle of their ranges.

Total volume in the NYSE surged 30%, while volume in the Nasdaq increased 14% above the previous day's level. The higher volume gains in both exchanges caused both the S&P and Nasdaq to register a bullish "accumulation day." However, analysis of the intraday volume patterns reveals increasing volume while stocks were selling off in the morning, and slightly declining volume during the afternoon recovery off the lows. Furthermore, the S&P 500 registered a bearish "distribution day" in the previous session. So, while last Friday's "accumulation day" was positive, the wild intraday price action made the apparent presence of firm institutional buying a bit deceiving. Market internals were decent. In both exchanges, advancing volume exceeded declining volume by a margin of approximately 3 to 1.

In the December 2 issue of The Wagner Daily, we pointed out the relative strength and potential breakout in the Semiconductor HOLDR (SMH). Over the three sessions that followed, SMH cruised steadily higher, despite indecisive and whippy conditions in the broad market. Now that SMH has confirmed its breakout above a major level of horizontal price resistance, we're stalking SMH for potential buy entry on a pullback to new support of its breakout level. The setup is shown on the daily chart of SMH below:



In our December 3 commentary, we highlighted iShares DJ Transportation Average (IYT) as another ETF that was positioned to break out above a key level of resistance. Zooming 2.1% higher last Friday, IYT showed nice relative strength to the broad market, as it broke out above the pivotal $73 area. Trading in IYT also spiked to about double its average daily level, hinting at buying amongst mutual funds, hedge funds, and other institutions. As such, IYT is another ETF we'll be monitoring for potential buy entry over the next few days:



Last Friday, the U.S. dollar finally got some love, causing the U.S. Dollar Bull Index (UUP) to motor 2.0% higher. More importantly, UUP broke out above resistance of its 20-day exponential moving average. Volume in UUP was approximately three times its average daily level. Take a look:



From November 5 to 12, UUP showed some rather wild action on its daily chart. However, the crazy volatility was the result of a very unusual situation in which shares of UUP dried up, forcing the creator of the ETF to issue additional shares. Therefore, the price action of that one-week period should be discounted when analyzing the daily chart pattern of UUP. In doing so, one realizes last Friday's breakout was a rally above a significant downtrend line. Since the direction of the broad market in recent weeks has been inversely correlated to the direction of UUP, one might consider burgeoning strength in UUP to be a possible negative for the short to intermediate-term direction of the major indices. But until the S&P 500 convincingly closes outside of its whippy, sideways range of recent weeks, it's best to maintain smaller than usual share size with all new positions. Being hedged on both sides of the market is also not a bad idea.

Open ETF positions:

Long - IBB
Short (including inversely correlated "short ETFs") - OIH, RKH

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.