Stocks followed up the first day of the new year with a session of whippy, indecisive trading that caused the major indices to finish near the flat line and with mixed results. After bobbing and weaving throughout most of the day, the broad market rallied in the final ninety minutes of trading, showing the bulls maintained the upper hand. The S&P 500 gained 0.3%, the Nasdaq Composite was unchanged, and the Dow Jones Industrial Average slipped 0.1%. The small-cap Russell 2000 dipped 0.2%, as the S&P Midcap 400 rose 0.2%. The Nasdaq and Dow closed near the upper quarter of their intraday ranges, while the S&P 500 closed at its intraday high.

Volume picked up again, as institutional investors continued returning to the markets. Total volume in the NYSE increased 17%. Turnover in the Nasdaq was 23% greater than the previous day's level. In both exchanges, it was the first day turnover exceeded 50-day average levels since December 18. But because the main stock market indexes were indecisive and turned in a mixed performance yesterday, the higher volume was actually indicative of bearish "churning" that occurs when institutions stealthily sell into strength. Lighter volume on a consolidation day would have been more positive. In the NYSE, advancing volume beat declining volume by a margin of 2 to 1. The Nasdaq adv/dec volume ratio was neutral.

After an impressive run that turned parabolic, spot gold began pulling back in early December, and the correction persisted through the end of the month. However, gold has been recovering over the past several days, and may be poised for another rally in the near future. On the daily chart of SPDR Gold Trust (GLD), which tracks the price of spot gold, notice the ETF has reclaimed its 50-day moving average (the teal line), and has been in a tight range for the past two days. A rally above the two-day high could present an entry point for a short-term momentum trade. Even if GLD fails to rally back to its prior high and forms a "lower high," a Fibonacci retracement of 61.8% is a realistic price target (around the $114 area):



Spot silver has also recovered to a level that may enable it to make a run for its prior highs in the near-term. This is illustrated on the chart of iShares Silver Trust (SLV), a well-known ETF proxy for the price of spot silver futures:



At times, individual gold stocks move in sync with the prices of the spot gold commodity. At other times, there is little correlation. Right now, gold stocks appear to be lagging spot gold. This is apparent on the daily chart of Market Vectors Gold Miners (GDX), an ETF comprised of a basket of individual gold mining stocks:



Because the recent correction was so sharp, one might consider a relatively tight stop if attempting to buy any of the gold or silver ETFs on a move above yesterday's highs. The rally that concluded in early December has signs of short to intermediate-term exhaustion, so one should be proactive regarding management of any precious metals ETFs. The recent rally in the U.S. dollar should also be considered, as further strengthening of the greenback could have a negative effect on the price of precious metals and other commodities.

Although the broad market's price action of January 4 was bullish, the rally merely counterbalanced the bearish end to 2009, which occurred with the December 31 sell-off. Since yesterday's session was relatively neutral, that leaves us with a market that needs to show follow-through in order to confirm the positive start to the new year. Despite the bearish price to volume relationship of yesterday's session, there's still no reason to believe the follow-through won't occur in the coming days. But until it does, consider a gradual building of new long positions, as well as a proactive management style to protect against failed breakouts.

Open ETF positions:

Long - SMH, XLE
Short (including inversely correlated "short ETFs") - (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.