On Friday stocks rallied for a third consecutive day, giving bulls a perfect record thus far for the month of December. Further, the day ended with the Nasdaq setting a new 52-week high. In fact, yesterday brought the highest close for the Nasdaq in well over two years. The major indices sold off briefly at the open, but quickly rebounded and remained in a trading range for the majority of the day. Around 3:30 pm, volume spiked and the market "caught a bid" that accounted for most of the day's advance. However, for the third time in five days, the last 10 minutes of trading was met with noticeable selling pressure. The higher beta small-cap Russell 2000, S&P MidCap 400 and the Nasdaq led the advance by posting gains of 0.7%, 0.6% and 0.5% respectively. The S&P 500 closed up by 0.3%, while the Dow Jones Industrial Average rose a minimal 0.2% to complete the first trading week of December.

Turnover was down again on Thursday. Although the market has performed quite well over the past two sessions, it is always noteworthy when a big move is not accompanied by a spike in volume. Large advances are typically accompanied by strong volume because of short covering. In Thursday's action, volume was down by 4.1% on the Nasdaq and 2.3% on the NYSE. Day over day, advancing volume once again outpaced declining volume on both indices. The ratio on the NYSE was a plus 5.8 to 1, and positive by a margin of 2.7 to 1 on the Nasdaq.

Since breaking out of its previous trading range in early September, the PowerShares DWA Emerging Markets Technical Leaders ETF (PIE), has been coiling in a tight zone over the past 10 weeks. This ETF is now exhibiting similar technical characteristics to its prior breakout on the weekly chart. Notice the volume and price action in PIE leading up to the September 10 advance. Although the week of August 6 saw a massive increase in volume, this ETF remained range bound. Then, for the next three weeks, volume plummeted, while PIE consolidated. Finally, in the first week of October, PIE was met with another huge volume burst, and shortly thereafter it rallied to new highs. A rally above the November 13 high of $18.83 (weekly chart) provides a potential long entry target for PIE. We like the relative strength in Pie and will continue to monitor it closely for a possible long entry. Please note that we have reached our exposure limit in the model trading portfolio. As such, we will not be entering new trades until other positions are closed.




The iShares Dow Jones US Telecom ETF (IYZ), is positioned for a potentially significant breakout above its 200-week moving average. For the past 10 weeks IYZ has maintained a tight zone of consolidation. Last week's trading brought a dramatic increase in volume to this ETF. Another volume fueled move above the 200-week moving average of $22.85 could present a buying opportunity for this ETF. A surge in volume is particularly important for the advance of IYZ, as it has not seen the 200-week MA since the first half of 2008. Further, if the S&P 500 and the Dow Jones Industrial Average set new one year highs, IYZ will likely follow.




The Nasdaq's impressive performance last week likely signals additional bullish potential. Both the S&P MidCap 400 and the small-cap Russell 2000 confirmed the bullish move in the Nasdaq. It is noteworthy that mid and small-cap stocks have significantly outperformed the broad market. We are now watching for broad market confirmation by the S&P 500 and the Dow. Possibly the most important confirmation we are still waiting for is an expansion in volume. Volume backed moves point directly to institutional involvement.

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.