After chopping around in a range throughout most of the day, near the flat line, stocks caught a bid in the final hour of trading, enabling the major indices to close solidly higher. The Dow Jones Industrial Average gained 1.0%, the Nasdaq Composite 0.8%, and the Dow Jones Industrial Average 0.7%. The small-cap Russell 2000 and S&P Midcap 400 indices advanced 1.1% and 0.8% respectively. This time, each of the main stock market indexes closed at its intraday high. The broad-based gains caused all the major indices to finish at new 52-week highs.

Turnover was mixed. Total volume in the NYSE edged 3% above the previous day's level, while volume in the Nasdaq was 1% lighter. Throughout most of the day, trading in the NYSE was tracking lower, but volume levels picked up alongside of the late-day rally. Market internals improved as well. In both the NYSE and Nasdaq, advancing volume exceeded declining volume by a healthy margin of 7 to 2.

In yesterday's commentary, we pointed out an unusual pattern on the daily chart of the Nasdaq, where the index formed a "bearish engulfing" candlestick that was immediately followed by a "bullish engulfing" candlestick. We suggested such action was indicative of growing confusion and indecision in the markets. In yesterday's session that followed, price action was not too indecisive, apart from a short-lived, moderate decline in the morning. However, based on negative pre-market prices in the S&P and Nasdaq futures markets, we may be in for another volatile session today. One possible cause for the pre-market weakness is a sharp overnight decline in the price of the euro, which has just fallen to a new 10-month low versus the U.S. dollar. Below is a daily Forex chart of the euro versus the U.S. dollar (EURUSD):



Although the euro has been under more selling pressure than other foreign currencies lately, nearly every other global currency has been retracing lower as well. This has had the effect of boosting the U.S. Dollar Bull Index (UUP), which is poised to gap above resistance of its recent "swing high" in today's session. On the daily chart of UUP below, notice how the 50-day moving average has perfectly acted as support for the second time since the reversal off the November 2009 lows began:



So far, we're pleased with how smoothly UUP has been obeying technical analysis. Back in January, we bought UUP after it pulled back to its 50-day MA, then sold into strength about one month later, locking in a large gain near its February highs. Then, after UUP pulled back to its 50-day MA again, we re-entered the position on March 18, the day after it retraced to touch its 50-day MA. With the 50-day MA neatly converging with support of the four-month uptrend line, UUP has been trending steadily higher. If UUP opens at a new high in today's session, it should be on its way to make another leg higher in the near to intermediate-term.

With the S&P and Nasdaq futures both trading approximately 0.5% lower (as of three hours before today's open), the S&P 500 is currently poised to open near yesterday's low. If the S&P futures decline just a few more points before the open, the S&P 500 will open below yesterday's low. Obviously, such action occurring after the index just closed at a new 52-week high would be bearish. Nevertheless, we do not advocate aggressive short selling today, even if that happens. Because stocks appear to be entering a whippy, more volatile state, being too heavily positioned on either side of the market right now is probably unwise. As we pointed out yesterday, cash is more and more looking like one of the best positions at the present. Putting the money where the mouth is, our model ETF portfolio still has just one open position, and one that's not even closely correlated to broad market direction (UUP long). Going into today, we're still stalking a possible entry point into another ETF with low stock market correlation, iShares 7-10 Year T-bond (IEF). A rally above convergence of the March 17 high and 200-day Ma remains our trigger point for buy entry. Stay nimble out there, and remember to "trade what you see, not what you think."

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.