Blowing off Tuesday's initially weak start to June, stocks raced higher yesterday, completely erasing the previous day's losses and then some. After a brief shakeout on the open, the major indices reversed course and marched north throughout the rest of the day. The S&P 500 and Nasdaq Composite scored identical gains of 2.6%, as the Dow Jones Industrial Average jumped 2.2%. The small-cap Russell 2000 and S&P Midcap 400 indices rallied 3.0% and 2.6% respectively. All the main stock market indexes closed at their highest levels of the day.

Even better than the market's sharp gains was the Nasdaq's higher volume that accompanied the broad-based advance. Although turnover in the NYSE edged 5% lower, total volume in the Nasdaq increased 3% above the previous day's level. The higher volume gain of the Nasdaq pointed to buying amongst mutual funds, hedge funds, and other institutions. It was the first clear "accumulation day" the Nasdaq has registered since the correction began more than a month ago. Given recent volatility in the broad market, combined with a vast amount of overhead resistance levels, a single instance of higher volume gains does not necessarily give the "all clear" signal to start aggressively buying and holding new positions. However, it does provide a bullish near-term sentiment for short-term traders.

In yesterday's commentary, we said it would be bearish if the S&P 500 Index failed to hold support of its February 2010 lows, which the index bounced off of last week. However, we also said, "an equally likely near-term scenario may be for stocks to hold their recent lows, and attempt to muster up the strength to break above last week's highs. The more negative market sentiment becomes this week, the more likely stocks will bounce again, even if only for a few days." With two sharp days of losses that caused the major indices to fall back to just above their May lows, it's fair to say sentiment was indeed rather negative going into yesterday's session. As such, we reasoned stocks could catch fire yesterday if the market held onto its opening gap up, and that's exactly what happened.

Fifteen minutes after yesterday's market open, we sent an Intraday Trade Alert to subscribers of The Wagner Daily that said, "Broad market trying to hold on to its opening gap up. If the major indices move to new intraday highs from here, after the opening shakeout, it could set in motion a bullish tone in the very near-term. . .Short-term traders comfortable holding positions for just 1 to 2 days might consider buying QQQQ or QLD if they rally to new intraday highs, with stops just below today's lows." Since the typical holding period of this newsletter is several weeks, not just a day or two, we did not "officially" buy QQQQ (or the leveraged QLD) in our model ETF portfolio. However, when spotting clear trade opportunities of a very short-term nature, we sometimes send courtesy alerts such as this. Thereafter, subscribers comfortable with daytrading, or similar holding period, can decide whether or not to take advantage of the trade setup. In this case, QQQQ rallied 1.5% more after reversing above its opening high (QLD gained 3%).

When the QQQQ alert was sent yesterday morning, it was too early to know whether or not the Nasdaq would finish the session with an "accumulation day." But now that the index has registered a strong day of higher volume gains, the very short-term trend (at least the next week, perhaps longer) has shifted to bullish. Therefore, we will now consider "official" buy entries in select ETFs we feel can be held for at least a week. Intermediate-term trends, however, remain bearish. As such, unless the major indices start moving back above their 50-day moving averages, we're still viewing the bounce as an opportunity to initiate new short positions in weak ETFs, but only when the main stock market indexes come into major overhead resistance levels. In tomorrow's newsletter, after we see how stocks follow up to yesterday's rally, we'll take an updated look at specific ETFs that could be buyable in the near-term.

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.