The bulls and bears engaged in a tug-of-war yesterday, causing the major indices to indecisively yo-yo throughout the entire session. The bears gained the upper hand by the closing bell, but not convincingly so. The Nasdaq Composite edged 0.1% lower, as both the S&P 500 and Dow Jones Industrial Average slipped 0.2%. The small-cap Russell 2000 eked out a gain of 0.1%. The S&P Midcap 400 was lower by 0.1%. As with the previous day, the main stock market indexes closed slightly above the middle of their intraday ranges.

Total volume in the NYSE declined 19%, while volume in the Nasdaq came in 8% lighter than the previous day's level. Although it's positive lighter volume accompanied yesterday's losses, monstrous amounts of snow in the Northeast may have prevented some traders and investors from participating in the markets. In the Nasdaq, turnover fell below its 50-day average level for the first time this year. Advancing/declining volume ratios in both exchanges were only fractionally negative. Overall, yesterday's session was a non-committal wash.

The major indices have formed back-to-back "long-legged doji star" candlestick patterns over the past two days. The doji star forms when the opening and closing prices are nearly the same, near the middle of the day's trading range. The formation of a single doji star indicates indecision and lack of direction, so the presence of two consecutive doji stars obviously points to even more confusion among stocks. Below, we've highlighted the two long-legged doji stars on the daily chart of Nasdaq 100 Index Tracking Stock (QQQQ):



In yesterday's Wagner Daily, we said the intraday highs of February 9 were key levels of very short-term resistance for the major indices; a rally above those highs would correlate to a breakout above the downtrend lines that have been in place for nearly a month. Since none of the broad market indexes moved above their February 9 highs yesterday, traders should be monitoring those same pivotal levels going into today. A rally above the February 9 highs could help the main stock market indexes reclaim a direction for more than an hour or two, and resistance of the February 2 highs would be the next short-term target. Conversely, the intraday lows of the past two days have become just as important levels of support. If stocks break below their two-day lows, all bets are off on the long side of the market, as a test of the February 5 lows could quickly follow thereafter.

In our February 9 commentary, we pointed out a potential buy setup in iShares 20+ year Treasury Bond Fund (TLT). At the time, it was poised to break out above a short-term level of horizontal price resistance, which would have enabled TLT to cruise above its five-month downtrend line as well. However, we also said TLT was not buyable unless it rallied above resistance, over the $92.50 area. When the market opened that day, TLT moved to an intraday high of $92.22, then reversed to close lower. Yesterday, TLT sold off more sharply, and is now back to testing the lows of its February 3 "undercut." But despite the negative price action of the past two days, it's irrelevant to us because TLT never reached our trigger price above the $92.50 area. Patience to wait for the proper entry price, rather than "jumping the gun," kept us out of the trade. For now, TLT has been removed from our watchlist, but we'll consider it again if it gets back up to the vicinity of our original trigger price. An updated chart of the TLT price action is shown below:



When the broad market opened nearly flat, fell to the prior day's lows, then bounced again, we made a judgment call to sell our recently entered position of S&P Midcap SPDR (MDY) yesterday. Although MDY missed our stop price during the morning pullback, we decided to sell for a small profit on the subsequent bounce because we didn't like the way the broad market was acting. Nevertheless, if stocks break out above their two-day highs and bullish momentum comes back into the market, we have no problem re-entering MDY, or any other broad-based ETF. Even though we'd be getting in at a higher price than our original entry near the lows, the odds of profitability on the trade would also be increased if the broad market breaks out. However, we're not excited about sitting on long positions unless the major indices break out above their short-term downtrend lines (the February 9 highs) and hold. If the two-day highs are broken and we get back on the long side of the market, we'll promptly send an Intraday Trade Alert to subscribers with details. Otherwise, we'll just focus on managing our UUP and SRS positions for maximum profitability. Be careful to avoid overtrading while the market is in "no man's land."

Open ETF positions:

Long - UUP
Short (including inversely correlated "short ETFs") - SRS

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.