Equities posted solid gains on Tuesday, but trade was light. The Nasdaq surged 1.8%, while the S&P 500, S&P MidCap 400 and the small-cap Russell 2000 each added 1.6%. The Dow Jones Industrial Average tacked on 1.5%. Computer hardware, coal and heavy construction were the leading sectors yesterday, while restaurants and brewers underperformed. Every major industry sector that we track closed up on the day.

Market internals were mixed for the second time in as many days. Volume dropped on the Nasdaq by 3.3% and by 4.2% on the NYSE. However, advancing volume easily outpaced declining volume on both exchanges. The ratio of advancing volume to declining volume ended the session at 7.3 to 1 on the NYSE and 3.8 to 1 on the Nasdaq. Nevertheless, yesterday's declining volume takes much of the luster off the rally, and clearly suggests an absence of institutional participation in the day's action. Conversely, the bulls would have been looking for total volume to expand in order to produce a bullish "accumulation day."

Yesterday, on light volume, the SPDR S&P Metals and Mining ETF (XME) formed a reversal candle as it attempted, but failed to reclaim its 20-day EMA. A move below yesterday's low of $48.43 could provide a short sale entry trigger for XME:



Since finding support at its 200-day MA on April 10th, the S&P Select Materials SPDR Fund (XLB) has climbed its way back into resistance of the 50-day MA. Yesterday, XLB found significant resistance at this key mark and may provide a shorting opportunity below yesterday's low of $36.41. Regular subscribers of The Wagner Daily will be notified via Intraday Alert of our exact entry and stop prices if a short sale entry is made into either XLB or XME:



The broad market continues to flash a sell signal, as stocks have been unable to post a significant "accumulation day" (higher volume gains) in the past two weeks. Until we see a substantially higher close, on higher volume, any new positions that we open will be at 50% or less of our normal size. We continue to suggest caution under the current market conditions. It's tough get excited about the upside potential in the market without some accumulation on the board...but the next follow through day could be just around the corner. We remain positioned mostly in cash, while keeping the top trade setups on our radar screen.

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.