Traders who were expecting uneventful, lazy trading action ahead of the New Year's Day holiday were certainly not disappointed yesterday. Stocks opened near the flat line, stayed glued to an extremely tight range throughout the entire day, then settled fractionally negative. The Dow Jones Industrial Average was unchanged. The S&P 500 moved horizontally, in an intraday trading range of only four points, before closing 0.1% lower. The Nasdaq Composite also slipped 0.1%. The small-cap Russell 2000 and S&P Midcap 400 indices lost 0.1% and 0.2% respectively. A touch of selling pressure in the final minutes of trading cause the major indices to close near their intraday lows, but that didn't mean much considering the day's trading ranges were so narrow.

Not surprisingly, volume declined again. Total volume in the NYSE was 9% lighter than the previous day's level, while volume in the Nasdaq eased 3%. Turnover was nearly 50% lighter than average, and has a good chance of declining even further today. Overall, yesterday's session was a non-event. If the powers of the various stock exchanges decided to close the markets yesterday, it's doubtful many traders and investors would have even noticed.

One of the strongest international ETFs of 2009, iShares Brazil Index (EWZ) has been in correction mode for the past several weeks, and is now showing relative weakness to the domestic markets. On December 17, EWZ sliced through key support of its 50-day moving average. After sliding lower for a few successive days, EWZ began to recover, and is presently sitting just below resistance of its 20 and 50-day moving averages, which have converged overhead. This is shown on the daily chart below:



Since EWZ did not merely "undercut" its 50-day MA by one day, then snap back above it, it's likely that pivotal moving average may now provide significant resistance on any subsequent rally attempt. Further, consider that EWZ is trying to reclaim its 50-day MA as the domestic markets reach into short-term "overbought" territory. Therefore, any normal pullback in the U.S. markets could pressure EWZ further. For a short-term swing trade, we like EWZ for entry below the low of the past two days (below the $74 area). Such a move could quickly send EWZ back down to test its December 22 low. Even if it fails to move any lower, one can still close the trade for a quick 3-point gain. But if the U.S. markets happen to correct early next month as well, EWZ could easily slide to a new "swing low," thereby yielding a potentially larger gain. Although we're not short EWZ, we remain positioned in UltraShort Emerging Markets ProShares (EEV), of which Brazil comprises a significant percentage of the portfolio.

If EWZ is an international ETF setting up to potentially move lower in the near-term, iShares South Korea (EWY) is the opposite. Consolidating at its high for the past three months, EWY may soon break out above the high of its range to make another leg up. Because the consolidation has been so lengthy, an upside move could be explosive if/when it happens. The bullish setup is illustrated on the weekly chart of EWY below:



Today, as with the past several days, we're intentionally keeping the commentary shorter than usual. There's simply not much to discuss or analyze when volume is so light. This is because any recent moves in either direction could be easily undone when institutions begin returning to the markets next week. Be prepared for the possibility of year-end profit taking over the next two days, but it seems just as likely we'll have two more snoozers instead.

Holiday Publication Schedule: Tomorrow, December 31, only an abbreviated version of The Wagner Daily will be published, primarily updating subscribers of any changes to open positions. On Friday, January 1, the stock markets will be closed in observance of the New Year's Day holiday. As such, The Wagner Daily will not be published that day. Regular publication will resume on Monday, January 4. We at MTG sincerely wish you the best personal and business success in 2010.

Open ETF positions:

Long - SMH
Short (including inversely correlated "short ETFs") - EEV, FAZ

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.