Stocks rallied sharply on Tuesday and closed near session highs. All of the major indices added more than 1.5%. The Nasdaq put in an impressive performance led largely by the recent good fortune of AAPL and GOOG. The tech rich index led the advance as it posted a 2.2% gain on the Day. The small-cap Russell 2000 also added 2.2% while both the Dow Jones Industrial Average and the S&P 500 tacked on 1.63% by the closing bell. The S&P MidCap 400 ended the day higher by 1.9%.

Internals ended the day mixed. Volume ended the session higher on the Nasdaq by 7.2% but fractionally lower on the NYSE. Advancing volume overpowered declining volume on both exchanges. The spread ratio ended the session at a healthy 5.5 to 1 on the NYSE and 5.3 to 1 on the Nasdaq. Despite the slightly lower volume on the NYSE it would be hard to argue that Tuesday was not an accumulation day for the broad market. Based on the strength of the price action it seems likely that institutional investors were actively engaged in Tuesday's advance and we would classify the move as an accumulation day for the market.

After a sharp undercut of its 20-day and 50-day moving averages, the PowerShares Dynamic Food & Beverage ETF (PBJ) reversed and rallied decisively back into its three-week trading range yesterday. As a result PBJ is now well positioned for a possible breakout move to new highs. A rally above the four-day high of $20.43 could present a buy entry in this ETF. Ideally we would like to see several days to several weeks of consolidation or a pullback to enter a position in PBJ. We will be monitoring this ETF closely for a possible buy trigger.



The iShares Nasdaq Biotechnology ETF (IBB) has held excellent relative strength to the market during the recent rounds of selling in the broad market. On Monday IBB formed a reversal candle after undercutting support at its 20-day and 50-day moving averages. A volume fueled rally back above the four-month high of $110.02 could present a buying opportunity in this ETF.



The whipsaw action in the market has made it difficult to identify quality setups that offer a reasonable risk/reward ratio. During times of high volatility we find it advisable to wait for the market to "settle down" and be patient in order to identify quality setups. A period of tight consolidation is generally needed for the market to make a sustainable advance.

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.