The major indices finished the day mixed on Monday, although there were no major winners or losers. Stocks began the day lower, made an uneventful rally to modest gains, but were met with a burst of selling in the final hour of trading. The absence of volume and late day selling pressure continue to put some overcast on an otherwise sunny market. In yesterday's session the small-cap Russell 2000 demonstrated the most resiliency as it managed a 0.6% advance. The Nasdaq finished the day slightly up as it posted a 0.1% improvement. The S&P MidCap 400 traded at par for the day, as the S&P 500 and the Dow Jones Industrial Average shed 0.1% and 0.2% respectively. It is noteworthy to mention that commodity ETFs were the shining stars in an otherwise flat day of trade.

Internals were mixed on Monday. For the second consecutive day both the NYSE and the Nasdaq saw volume decrease significantly. Volume on the NYSE was down by 10%, as the Nasdaq realized a slightly bigger decline in volume of 11%. For the first time this month, declining volume edged out advancing volume by a factor of 1.1 to 1 on the NYSE. However, on the Nasdaq, the advancing volume to declining volume ratio closed the day positive by a ratio of 1.5 to 1. For the fourth consecutive session volume has been a stranger to the market. Its absence does pose concern. But, at least for the moment it is not an overwhelming concern. Nonetheless, for the rally to remain healthy the internals probably need to improve soon.

All of our active positions performed admirably on Monday. This is mainly attributable to identifying the right industry groups and sectors that were prepared to break out. Commodities, energy and energy related plays were identified early as breakout candidates and they have performed well since we entered the positions. Five of our seven open positions fall within these industry categories/sectors. XOP, EPU, KOL, PHO, YCS and UNG were all up in Monday's session, as they posted gains of 0.6%, 0.8%, 0.5%, 1.0%, 0.2% and 4.2% respectively. USO was slightly down on the day. But this is not unusual following a powerful seven-day advance. It appears that USO took a breather yesterday, as it slipped 0.3%. Our long position in the PowerShares Water Resources Portfolio ETF (PHO) is at an important technical crossroad. To rally further, this ETF must be able to hurdle above the resistance established at the previous swing high on April 30th ($18.68). In yesterday's action, PHO briefly "kissed" this important level, but closed the day 6 cents off the mark at $18.62. It would be quite normal to see a false breakout above this level, followed by several days or weeks of consolidation in preparation for the next advance. Regardless of how the potential advance plays out, strong volume will likely be necessary to fuel the move. Once resolution is found at this key level we will provide our members with trailing stop details.




The Vanguard Pacific ETF (VPL), has been consolidating for the past five weeks between $55.00 and $58.00. After a "shakeout" undercut of the 50-day MA on November 30, this ETF gapped up sharply the December 1, and is now positioned to potentially see new highs. A volume-led move above $57.66 may offer a buying opportunity in VPL.




We're still patiently waiting to see signs of improvement with the market internals. We remain bullish, but would welcome a spike in turnover, as it would signal strong commitment on the part of institutional players. We are also monitoring the Dow and S&P 500 closely, as new highs in both indices would likely lead to a surge in buying activity.

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.