On light volume, the major indices ended Friday's session split. The blue chip Dow ended the year by posting a slim 0.1% gain on the session. The S&P 500 finished the day flat, while the Nasdaq, S&P MidCap 400 and the small-cap Russell 2000 fell by 0.4%, 0.7% and 0.8% respectively. Overall, 2010 was a good year for stocks as all of the major indices posted double digit gains.

Market internals were mixed on Friday. In pre-New Year's trade, volume on the Nasdaq fell a dramatic 67.2%, while turnover on the NYSE increased by a respectable 7.4%. However, NYSE volume was still well below average. Friday's action saw advancing volume outpace declining volume on the NYSE by a factor of 1.2 to 1. On the Nasdaq sellers held the upper hand, as declining volume was heavier than advancing volume by a ratio of 1.5 to 1.

Our current position in PHO is exhibiting signs that it is preparing for another advance. PHO has recently pulled back to its 20-day EMA on declining volume. An undercut of this moving average, followed by a reversal candle, would further substantiate this opinion. An alternative bullish set-up would be a gap-up or rally back above the four day high of $10.24 on increasing volume.



The SPDR S&P Biotechnology ETF (XBI), is pulling back into support at its 20-day EMA. An undercut of and consolidation at this price level may provide a long entry in this ETF. We will be carefully watching the price action at this key support level for a possible buy entry.




As we have discussed in recent newsletters, market laggards often show signs of life (even leadership) near the end of major uptrends. Recent examples are the banking and real estate sectors. This is not to suggest that we are prepared to call top in the market. Rather, this type of rotation is often a leading indicator to market reversals. The PowerShares WilderHill Clean Energy ETF (PBW) is an excellent example of a laggard that has recently gained market attention. For the past month, this ETF has been consolidating above its 20-day EMA and 50-day MA. Further, volume in PBW has remained very strong as broad market internals have weakened. A move back above the December 30th high of $10.50 could provide a long entry trigger for PBW. Due to its recent price and volume action, we are placing PBW on the watchlist. For our subscribing members, trade details can be found in the watchlist segment of the newsletter.



Now that the holiday season is over, we should begin to see a return of institutional involvement in the broad market. Based on recent price action we would not be surprised to see the market make one last advance prior to a substantial correction.

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.