Stocks closed mixed on Wednesday on modestly higher volume. Large-cap tech stocks weighed down the market for most of the day. After being ravaged by almost 2.5%, the Nasdaq surged higher late in the session to close down only 1.0% on the day. All the other major indices posted modest gains following the late day surge. The small-cap Russell 2000 and the S&P MidCap 400 ended higher by 0.3% and 0.2% respectively. The S&P 500 also added 0.2%, as the Dow Jones Industrial Average closed fractionally higher.

Market internals ended the day mixed. Turnover rose by 4.1% on the Nasdaq but only marginally on the NYSE. However, declining volume outpaced advancing volume on the Nasdaq by 1.6 to 1, while advancing volume held the upper hand by a factor of 2.3 to 1 on the NYSE. Although the broad market closed higher, the gains were not enough to constitute an accumulation day. The Nasdaq saved itself from a certain distribution day disaster as a result of its strong rally into the close. We do not believe it would be correct to classify yesterday's price action in the Nasdaq as distribution, given that the index closed in the upper 25% of its intraday range, and formed a reversal candle.

Yesterday, via intraday alert, we entered a small position in the ProShares UltraShort Silver ETF (ZSL). Since breaking out on December 14, ZSL has spent five sessions forming a bullish pennant. We took small size at this level with a small stop in anticipation of a breakout. Since we got in early we set a wide stop. Depending on how ZSL sets up from here, we may consider adding to the position if the setup warrants doing so.



In Wednesday's newsletter we stated that YCS was a potential long candidate, as it has been consolidating at the 20-day EMA over the past three weeks. Based on yesterday's price action we have decided to place YCS on the watchlist. Trade Details are available to our members in the watchlist segment of the newsletter.



Yesterday's intraday recovery was decisive and provides another sign that bulls may be getting closer to wrestling control of the market. Nonetheless, we don't carry big expectations going into the holiday season. If the market can avoid setting a new swing low between now and the new year, we could be very well setting up for a January rally. But as we've learned over the past several weeks, expect the unexpected when it comes to this 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.