An indecisive session finished on a positive note yesterday, as the Nasdaq led the broad market for a second straight day. After gapping higher on the open, stocks drifted back down by mid-day, but the bulls resumed control in the afternoon, enabling the major indices to settle in the plus column. Closing near its intraday high, the Nasdaq Composite showed relative strength with a 1.0% gain. Conversely, the blue-chip Dow Jones Industrial Average only edged 0.1% higher and finished just above the middle of the day's range. The S&P 500 rose 0.4%. Rallying 1.1%, the small-cap Russell 2000 Index kept pace with the Nasdaq. The S&P Midcap 400 similarly advanced 0.7%..

With total volume ticking 2% higher, the Nasdaq scored its second straight "accumulation day." However, turnover in the NYSE was 9% lighter than the previous day's level. Curiously, despite the Nasdaq registering back-to-back days of higher volume gains, it was the sixth straight day of declining trade in the NYSE. Mutual funds, hedge funds, and other institutions are apparently placing their bets on a faster recovery in the tech-heavy Nasdaq. When funds come back into the stock market after a sharp period of decline, leadership is frequently found in more aggressive growth areas such as the Russell 2000 and Nasdaq, rather than the more "defensive" Dow.

Jumping more than 6%, U.S. Natural Gas Fund (UNG) was one of the top-gaining ETFs in the market yesterday. More importantly, UNG convincingly broke out above the high of a two-month base of price consolidation, backed by a volume spike to nearly twice its average daily level. Yesterday's breakout is shown on the daily chart of UNG below:



In the near-term, there is now minimal resistance to contain the price of UNG. The prior lows of December 2009, around the $8.50 level, is the next minor area of technical resistance. Above that, UNG will contend with more substantial resistance from the price congestion in the beginning of the year. However, that's about 15% above the current price. We were already long UNG going into yesterday's session, and then added to the position on the clear breakout above the high of the range. But if you missed our initial buy entry, any pullback to near the breakout level (the $7.70 to $7.80 area) presents a secondary buy point, as that prior level of resistance should now act as support.

Precious metals sold off yesterday, and price action is starting to confirm our recent analysis of bearish development in the precious metals ETFs. The iShares Silver Trust (SLV) has fallen back below key support of its 50-day moving average, after trading above it for just four days. Take a look:



Still trading well above its 50-day MA, the SPDR Gold Trust (GLD) is holding up better than SLV. However, GLD may have formed a "lower high" on its daily chart. Any further weakness in today's session will cause GLD to lose near-term support of its 20-day exponential moving average as well. For your information, DGZ and DZZ are the ticker symbols for two "short ETFs" inversely correlated to the price of spot gold. Though we're not short any of the actual precious metals commodity ETFs, we remain short Market Vectors Gold Miners (GDX), which is composed of a basket of individual gold mining stocks. Falling 1.7% yesterday, GDX appears to be completing the right shoulder of a bearish "head and shoulders" pattern on its daily chart (with a declining neckline).

In the May 28 issue of The Wagner Daily, we pointed out U.S. Oil Fund (USO), which roughly tracks the price of crude oil, as a potential short setup on a bounce. Thereafter, USO failed to go any higher, and therefore missed our trigger price for short entry. However, USO showed considerable strength yesterday, and now looks as though it may make another run at the $35 to $36 range. If it does, we plan to enter USO as a new short position. An updated daily chart of the setup is shown below:



While the S&P 500 recently fell to test its February 2010 lows, and is now trading below its 200-day moving average, one ETF that has shown relative strength to the broad marekt throughout the May sell-off is the S&P Retail SPDR (XRT). The daily chart is shown below:



Although it's below its 50-day MA, like the rest of the major indices, XRT never came close to retracing down to its February lows. The ETF also remained well above its 200-day moving average (the orange line) throughout the entire correction. Yesterday, XRT popped above resistance of its 6-week downtrend line, which should generate bullish momentum in the near-term. Now, a rally above the May 28 high of $41.16 may present a buying opportunity for momentum traders. Nevertheless, with the Nasdaq only in a short-term uptrend, but still in an intermediate-term downtrend, long positions with a direct correlation to the broad market should be managed proactively, using trailing stops to protect any profits along the way.

Negative comments out of Hungary this morning are weighing heavily on the euro, as well as the S&P and Nasdaq futures. In the pre-market, U.S. Dollar Bull Index (UUP) is trading above the high of its recent consolidation. While this is bullish, we were looking for a pullback that "undercut" support in order to buy UUP. Today's continuation breakout may hold up, but we prefer to buy a currency ETF like UUP on a pullback to support, rather than a breakout above a range. Still, UUP remains on our watchlist for potential buy entry. We're also stalking select treasury bond ETFs (such as TLT) for possible buy entry on its current pullback.

Open ETF positions:

Long - UNG
Short (including inversely correlated "short ETFs") - GDX

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.