Stocks wrapped up an indecisive week of trading with mixed results last Friday, but the session's bullish intraday price action may bode well for sentiment over the next few days. Gapping approximately 1.5% lower on the open, the major indices certainly got off to a scary start. However, prices stabilized shortly thereafter, and stocks drifted higher throughout the rest of the day. Gaining 0.3%, the Nasdaq managed to finish in positive territory. The S&P 500 lost 0.3% and the Dow Jones Industrial Average declined 0.4%. Small-caps showed relative strength, enabling the Russell 2000 to cruise 0.9% higher. The S&P Midcap 400 rose 0.8%. All the main stock market indexes closed in the upper quarter of their intraday ranges.

Turnover rose across the board, despite last Friday preceding a holiday weekend. Total volume in the NYSE jumped 22% above the previous day's level, while volume in the Nasdaq increased 5%. Though it would normally be negative that higher volume accompanied the losses in the S&P and Dow. However, given that both indices trended higher throughout the day, then finished near their best levels of the day, it would be misleading to say it was a bearish "distribution day." Gaining on higher volume, the Nasdaq Composite actually registered a bullish "accumulation day." In both exchanges, volume moved back above 50-day average levels.

On a technical level, the outcome of last Friday's session was a significant determinant to the bias of the broad market in the coming days. After grinding higher throughout most of the week, the steep opening gap down on Friday's open could easily have sparked a massive sell-off that sent stocks back to their recent lows. In fact, we were prepared to enter new short positions if the lows of the first thirty minutes were violated. But buyers confidently stepped up to the plate instead, enabling the major indices to finish near their intraday highs and snap their four-week losing streak. Since stocks were given the perfect excuse to fall apart last Friday and didn't, one might now assume an overall neutral to positive short-term bias.

One industry sector ETF that has shown substantial relative strength to the broad market in 2010 is iShares U.S. Home Construction (ITB). While the S&P 500 is still down approximately 3.5% for the year, ITB is showing a gain of more than 9%. When the broad market began correcting last month, ITB initially moved lower, but snapped back after bouncing off support of its 50-day moving average. Now, it is consolidating near its recent highs, poised for a breakout to fresh highs of 2010. If it breaks out, ITB may present a buying opportunity for short-term swing traders. The daily chart of ITB is shown below:



Another ETF that could be in play this week is SPDR Gold Trust (GLD), which is poised to resume its long-term uptrend by breaking out above resistance of its intermediate-term downtrend. This is shown on the daily chart below:



In early February, GLD "undercut" a key area of horizontal price support, as marked by the dashed horizontal line. Shaking out the bulls, the "undercut" caused traders and investors to sell near the lows of the correction, thereby eliminating overhead supply that might have otherwise been a factor. Just a few days later, GLD climbed back above the pivotal area of horizontal price support. Now, GLD is within striking distance of its downtrend line that began with the highs of early December 2009. Resistance of the 50-day MA (the teal line) is also a factor to consider, but the more significant resistance level is probably the clearly-defined downtrend line. If GLD gaps above that downtrend line and holds, it could easily snap back above its 50-day MA as well. Nevertheless, one legitimate cause for concern with this setup is the bullish trend of the U.S. Dollar Bull Index (UUP). Gold often, but not always, moves inversely to the direction of the U.S. dollar. As such, traders initiating a swing trade in a GLD breakout may want to keep a close eye on the U.S. dollar as well.

Although stocks may attempt to build on last week's reversal off their recent lows, this is not the time to be complacent. Quite a bit of overhead supply remains near current levels, and the 20/50-day moving averages may also provide formidable resistance for the major indices on any subsequent rally attempt. Furthermore, it's a holiday-shortened week with this Friday being options expiration day. Therefore, until we see a little more substance to last week's bounce, it may be prudent to maintain a very short-term timeframe with any new long positions. New short selling opportunities may present themselves if stocks rally into key resistance levels and stall, but we're now avoiding new short entries until we can more accurately determine whether or not last week's gains marked a significant bottom.

Open ETF positions:

Long - UUP
Short (including inversely correlated "short ETFs") - (none -- closed SRS for a gain)

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.