Stocks kicked off the week with a choppy, indecisive session of trading yesterday, as the broad market reclaimed a chunk of the previous day's losses. The major indices opened higher, sold off to briefly "undercut" the prior day's lows, then moved back into positive territory in the afternoon. The Nasdaq Composite rose 0.9%. Both the S&P 500 and Dow Jones Industrial Average gained 0.6%. The small-cap Russell 2000 and S&P Midcap 400 indices advanced 0.4% and 0.6% respectively. The S&P and Dow closed just below the upper quarter of their intraday ranges. The Nasdaq settled near its high of the day.

Total volume in the NYSE receded 32%, while volume in the Nasdaq was 20% lower than last Friday's level. The substantially lighter volume in both exchanges tells us yesterday's bounce lacked the support of institutional buying. Considering the prior day's sell-off occurred on sharply higher volume (a "distribution day"), the near-term price to volume relationship in the broad market remains negative. If stocks attempt to recoup the rest of their July 16 losses from here, it will be especially important that any rally is backed by higher volume. Otherwise, any hard-earned gains can be too easily erased with just another round of institutional selling.

Due to its relative strength and a bullish pattern on the daily chart, Claymore Global Solar Energy (TAN) is one ETF that has recently come onto our radar screen. Since July 1, the S&P 500 SPDR (SPY), a popular ETF proxy for the benchmark S&P 500 Index, has gained 5.1%. Although that's a significant advance, TAN has actually jumped 19.1% higher in the same period. The relative strength of TAN versus the S&P 500 is easy to see on the "percentage change chart" below:



Most of the bullish divergence and outperformance of TAN occurred in the first week of July (note the steep angle of ascent), as SPY bounced from its oversold condition. However, a closer look at the relative performance of these two ETFs over just the past two days shows the relative strength of TAN is still in effect. For example, the July 16 sell-off caused SPY to slide back down to its July 8 low. However, notice that TAN stayed well above its prior low form July 8. In fact, it even formed a "lower high," above its July 12 low. Then, when SPY bounced to recover only a relatively small portion of its July 16 lows yesterday, TAN roared back towards the highs of its recent range, erasing nearly all of last Friday's loss. This positions TAN for a breakout and resumption of its developing uptrend if the broad market at least holds up in the coming days. The bullish, near-term consolidation of TAN is shown on the daily chart below:



What is not shown on the "percentage change chart," but is plainly evident on the daily chart above is that TAN also formed a "higher low" at the end of June/beginning of July. Conversely, all the main stock market indexes formed "lower lows" at that time because they fell below their May/June lows. This is further confirmation of the relative strength TAN has been exhibiting for the past month. Now, TAN could be considered for potential buy entry on a breakout above the high of its recent range (above the $7.80 area). However, a pullback to the 20-day EMA (the beige line), which would "undercut" the low of the current trading range, would be a lower risk entry point. Nevertheless, all bets are off for buying TAN if the major indices slide much lower, back down to test their July lows.

Now that the main stock market indexes suffered a bearish "distribution day" after failing to move back above key resistance of their 50 and/or 200-day moving averages last Friday, then bounced unimpressively on lighter volume yesterday, there's a decent chance the major indices may be headed back down to their early July lows. But it's equally likely stocks will just chop around in a sideways range in the near-term. With the S&P 500 undergoing a failed breakout in mid-June, followed by a failed breakdown in early July, it may be wise to not harbor any strong opinions regarding broad market direction right now. Throw the uncertainty of quarterly earnings season into the mix, and the situation becomes even more unclear. Case in point is that the earnings reports of IBM and Texas Instruments, after yesterday's close, sparked an after-hours drop in the S&P and Nasdaq futures that took both instruments down to within a few points of the day's lows. Stay alert out there, and remember to "trade what you see, not what you think."

Open ETF positions:

Long - SMH, DBA, TLT, 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.