After gapping higher on the open, stocks abruptly reversed lower yesterday morning, but stabilized less than an hour into the session. Thereafter, the major indices chopped around in a tight, sideways range throughout the rest of the day. Although the broad market begrudgingly rose in the afternoon, a sell-off in the final minutes of trading caused the main stock market indexes to finish slightly lower. The S&P 500 and Nasdaq Composite eased 0.1%, while the Dow Jones Industrial Average slipped 0.2%. Bucking the trend, the small-cap Russell 2000 gained 0.1%, marking its ninth consecutive advance. The S&P Midcap 400 was unchanged. The major indices closed near the bottom third of their meandering intraday ranges.

Total volume in the NYSE was 16% lighter than the previous day's level. Turnover in the Nasdaq similarly decreased by 12%. It was the fifth day in a row volume failed to exceed 50-day average levels. In both exchanges, declining volume was on par with advancing volume. The lackluster trading, lighter volume, and flat market internals made for a rather uneventful session yesterday.

Although the sector has been quite choppy in recent weeks, the biotech industry continues to exhibit relative strength to the broad market. While the major indices have retraced about two-thirds of their recent losses, several biotech ETFs are now consolidating near their 52-week highs. Of the group, iShares Nasdaq Biotech (IBB) has been showing the tightest consolidation over the past week. The bullish pattern is illustrated on the daily chart of IBB below:



If IBB rallies above the four-day high of $85.66, it will break out above the high of its very short-term trading range, as well as the downtrend line from the January 2010 high. Such a move could present a trigger point for buy entry into IBB. However, it's important not to "jump the gun" with a premature buy entry ahead of the actual trigger price. As for a protective stop, swing traders might consider placement just below the rising 50-day moving average (the teal line), presently at $82.77. If IBB falls back to near its recent lows again, we don't want to be long.

In addition to IBB, we continue to monitor SPDR Gold Trust (GLD) for potential buy entry on a breakout above the high of its five-day range. The decreasing inverse correlation between gold and the U.S. dollar, which we discussed in yesterday's commentary, still appears to be true. The U.S. Dollar Bull Index (UUP) moved lower yesterday, and GLD did too. On the short side, we still like the setup in PowerShares Base Metals (DBB). Showing relative weakness to the broad market, DBB fell 1.9% yesterday, and could already be on its way back down. But we'd ideally like to see a "stop run" or "overcut" of the 50-day MA, at least on an intraday basis, just to absorb some demand before selling short.

The broad market has basically been directionless for the past two days, and there has been a relative equilibrium of buying and selling pressure. This occurs as most of the major indices are still trying to convincingly break out above both their 61.8% Fibonacci retracement levels and 50-day moving averages. In a nutshell, the main stock market indexes are apparently at "make it or break it" levels that could soon lead to big moves in either direction. Because the bears seemingly remain in hibernation, and stocks are now in a very short-term consolidation, a breakout to the upside is certainly possible. Nevertheless, a substantial pullback would not be surprising because stocks have rallied straight into key resistance levels within a short period of time. Frankly, we don't have that strong of an opinion regarding the market's next move, which is exactly why we've been laying low over the past few days. With the exception of quick momentum trades, it may be a great time to take a "wait and see" approach to the market's next move.

Open ETF positions:

Long - UUP
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.