A volatile, indecisive day of trading concluded last week's session, as the main stock market indexes hopped on a roller coaster ride before settling slightly lower. After opening approximately 1% lower, the major indices swiftly reversed to nearly unchanged levels within the first thirty minutes of trading, but subsequently turned tail and plunged to new intraday lows an hour later. Stocks consolidated near their lows for most of the afternoon, hinting at an ugly close, but the bulls returned in the final ninety minutes of trading, trimming losses to modest levels by the closing bell. Both the Dow Jones Industrial Average and Nasdaq Composite declined 0.2%. The benchmark S&P 500, off 1.7% at its intraday low, finished just 0.4% lower. The small-cap Russsell 2000 lost 0.7%, but the S&P Midcap 400 Index slipped only 0.2%. All the broad-based indexes closed near their highs of the day.

Total volume in the NYSE ticked 8% higher, while volume in the Nasdaq similarly rose 9% above the previous day's level. The market's losses on higher volume technically caused both the S&P 500 and Nasdaq Composite to register a bearish "distribution day," indicative of institutional selling. However, close analysis of the intraday volume patterns shows turnover actually swelled the most during the late-day rally into the close, which is bullish. Overall, there were a lot of mixed signals in last Friday's session, making the day's price to volume relationship rather inconclusive. In both exchanges, declining volume exceeded advancing volume, but by a margin of less than 2 to 1.

Friday's session was representative of the entire week of trading. Stocks gapped sharply higher last Monday, but failed to make headway thereafter. Instead, the major indices chopped around in non-committal fashion for three days, then concluded with Friday's wild, whiplash-inducing session that essentially led nowhere. While the popular financial media is always quick to point out every news event under the sun as a reason for the market's price action, a technical look at the chart of the S&P 500 quickly shows why the broad market may be at the start of a significant tug-of-war between the bulls and bears. Below is a daily chart of the S&P 500 SPDR (SPY), a popular ETF proxy for the S&P 500 Index:



For weeks, we have been discussing the importance of the June 2010 high of the S&P 500 (as well as the other major indices) as a pivotal level of resistance that will determine the broad market's next move in the intermediate-term. While stocks are presently in a short-term uptrend, the major indices will not shift into a confirmed intermediate-term trend unless they convincingly break out above key horizontal price resistance of their prior highs from June of 2010. Since last week was the first time the S&P kissed its June high, volatility near current price levels is to be expected. Throw in the close proximity of the important 200-day moving average of the S&P 500, which the index toyed with last Friday, and it's easy to see why bulls and bears are now jockeying for position. It's a similar situation in the Nasdaq Composite:



Like the S&P 500, the Nasdaq is trying to build a base of support above its 200-day moving average. However, as the dashed horizontal line indicates, the index is still trading below even its late July "swing high." If the index overcomes that level, it still must contend with resistance of its June high above that.

Given the intermediate-term technical picture of the S&P and Nasdaq, it may be a good idea to lay low for the next few days, with regard to entering new trades. As last Friday's session demonstrated, volatility typically increases near pivotal levels of support and resistance. Traders unprepared for such whipsaw action can easily find themselves churning their accounts by overtrading. As such, our primary focus right now is on managing our current ETF positions for maximum profitability, rather than aggressively looking for new trade entries. There are still a handful of ETFs on our watchlist for potential buy entry (primarily a few international ETFs), but the risk-reward of jumping into new long positions as the major indices test such a major resistance level is not very positive. If, however, stocks convincingly move above resistance this week, and stick, fresh trade opportunities will develop for pullback entry.

Open ETF positions:

Long - TLT, TAN, UNG, UUP
Short (including inversely correlated "short ETFs") - DZZ

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.