Equities rebounded from early losses to end the day modestly higher. Volume was down but the intraday reversal was nonetheless impressive. All five major indices closed in the black. The small-cap Russell 2000 led the rally as it posted a solid 0.9% gain. The S&P MIdCap 400 rose 0.7% while the Nasdaq tacked on 0.6% for the session. The S&P 500 and the Dow Jones Industrial Average both improved by 0.5%.

Market internals ended the session mixed. Trade was lighter across the board. Volume fell on the Nasdaq by 1.5%. The NYSE saw a decline in volume of almost 2% yesterday. Despite the drop in trade, advancing volume edged out declining volume by a ratio of 1.3 to 1 on the NYSE and 1.2 to 1 on the Nasdaq. Because the reversal was not accompanied by an increase in volume, we would not characterize yesterday as an accumulation day for the market.

In yesterday's newsletter we stated "The First Trust Materials AlphaDEX ETF (FXZ) has been setting a sequence of higher lows as it has been testing resistance at $26.15. Should this ETF hold support near the current uptrend line its next test of the $26.15 resistance level could very well result in a breakout move to new highs". During yesterday's session FXZ formed a reversal candle that held support at the uptrend line. Because of this bullish price action we are placing FXZ on the watchlist. Trade details are available for our subscribing members in the watchlist segment of the newsletter.



The iShares Dow Jones US Tech Sector ETF (IYW) has been consolidating for the past 15 days above its 20-day EMA. Over the past three sessions volume has contracted significantly. A sharp reduction in volume during a period of consolidation during an uptrend is considered a bullish signal. Further, IYW formed a bullish reversal candle yesterday as it sharply undercut the 20-day EMA. A volume assisted move back above the three day high of $68.44 may provide a buy trigger for this ETF. We like this setup and will be monitoring IYW closely for a possible long entry.

 

For the second consecutive session the market reversed sharply against the previous day's trend. This type of whipsaw action suggests that there is a heightened level of "discussion" occurring between market bears and bulls. One noteworthy characteristic of the most recent advance (from the mid-March lows), is that the market has moved to new highs while many market leaders such as AAPL and PCLN have failed to do the same. Further, the rally has occurred in the absence of broad-based participation. These are often early signs that the market may be weakening.

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.