The major indices posted healthy gains on Wednesday, but on mixed volume. Stocks gapped up at the open and consolidated at the highs for the remainder of the day. All five indices closed at their highest level since the market rally began in early 2009. The S&P 500 led the advance by posting a 0.9% gain on the session. Following closely, the small-cap Russell 2000 and the Nasdaq both finished the day 0.8% higher. The Dow Jones Industrial Average rose 0.7% while the S&P MidCap 400 posted a 0.6% advance.

Turnover finished mixed for the second consecutive day. Volume on the NYSE increased by 2.7%, while the Nasdaq saw volume decline by 1.3% in yesterday's session. Even though trade was somewhat muted, advancing volume outpaced declining volume on both indices. The advancing to declining volume ratio ended the session at 4.7 to 1 on the NYSE and 3.5 to 1 on the Nasdaq. Stocks continue to rally in the absence of serious volume.

IEV hit its stop yesterday and we exited the trade. We are removing THD from the watchlist as we have found it difficult to borrow shares. All other positions remain intact. PHO and PBW have been performing particularly well. PBW finished the day up 1.6% while PHO posted a 1.9% gain.

The iShares MSCI Chile Investable Market ETF (ECH) could provide a shorting opportunity with a rally back to the declining 20-day EMA. Prior to yesterday, ECH was under heavy selling pressure for six consecutive sessions. This selloff shattered a seven month trend line in this ETF. ECH found support just below the 20-week EMA (see weekly chart). Note that the horizontal resistance line found on the weekly chart corresponds almost exactly with the 20-day EMA. We will continue to monitor ECH as a possible short candidate.





The iShares MSCI All Peru Capped Index ETF (EPU) recently broke its trend line and lost support of the 20-day EMA and the 50-day MA amidst substantial volume. A rally back into resistance at these key moving averages, or a drop below the January 10 low of $46.85, may present an opportunity to short EPU.



Due to the recent whipsaw price action and accompanying gaps, we are inclined to wait for new setups to form rather than chase the market. We are wary that breakouts may not follow through because of light volume in the broad market.

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.