The major indices closed mixed on Monday, with the lower beta blue chips exhibiting the most strength. At the open, the market gapped up but was met quickly by a wave selling. Stocks then clawed their way back to session highs, only to be met with high volume selling into the close. For most of the day it appeared that the Dow would close above its November 5 high of 11,452, thus confirming the move already made last week by the other four indices. But the absence of institutional commitment resulted in a false breakout and a return to the trading range for the Dow. Despite the late day selling, the Dow Jones Industrial Average closed up 0.2% yesterday. The S&P 500 ended the session flat, while the small-cap Russell 2000, the Nasdaq and the S&P MidCap 400 shed 0.6%, 0.5% and 0.3% respectively

Turnover was mixed in Monday's action. Day over day volume on the NYSE declined by 4.1% and likely explains the DJIA's inability to hold the breakout. Trade on the Nasdaq increased by 5% on Monday, but declining volume outpaced advancing volume by 2.5 to 1. GIVEN THE RECENT ADVANCE OF SMALL AND MIDCAP STOCKS, YESTERDAY'S SELLING WAS NOT SURPRISING. Although volume declined on the NYSE, the ratio of advancing to declining volume finished the day at a positive 1.3 to 1. The absence of strong broad market internals seems to be handcuffing an all out bullish advance.

The Vanguard Total Bond Market ETF (BND) is now resting at a key support level since the vicious selling began in this ETF in early November. A quick review of the weekly and monthly charts, below, provide evidence that the bond market may see a relief rally over the next several days. A move above the weekly high of $80.60 presents a potential buying opportunity for BND.







Since January of this year, the PowerShares DB Base Metals ETF (DBB), has thrice attempted to rally above $24.00. Recently, this ETF was met with brisk selling that resulted in a significant undercut of the 20-day EMA, 50-day MA and the six-month trend line. On December 1 DBB reclaimed its trend line. Since then it consolidated for seven days, and yesterday it gapped and rallied above the seven-day high. The rally was accompanied by a solid increase in volume relative to broad market volume. If DBB can manage its way above the triple top on a burst in volume, it could make a run at the all-time high of $29.70.




Over the past several weeks the Market Vectors Indonesia ETF (IDX) has exhibited relative weakness compared to many other emerging market ETFs. Over the past three months IDX has formed an up-trending head and shoulders type pattern. On November 30 IDX lost support on a massive increase in volume, but managed to recover quickly. On Monday IDX lost support of the 20-day EMA and the 50-day MA on increasing volume. This could represent a "shakeout" undercut of these key moving averages. But, given the weakness exhibited by this ETF on November 30, the current price and volume action take on more significance. A move below $87.30 would likely present a shorting opportunity for IDX. Since this is a counter trend setup, it carries more risk. It is not an official call but we are monitoring it closely.




False breakouts as witnessed in the Dow today, have been a bullish trademark of the market advance for well over a year. If recent market action maintains form, we would expect to see a Dow-fueled, broad market rally soon. But given the recent pullback of the bond market into key support, a few days of consolidation or selling would not be unusual.

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.