Wednesday was a good day for Wall Street. Stocks closed higher across the board on strong trade. All five major indices closed higher by more than 2%. The small-cap Russell 2000 led all indices, as it posted a healthy 2.6% advance. Both the Nasdaq and the Dow Jones Industrial Average gained 2.4%, while the S&P 500 and S&P MidCap 400 tacked on 2.3% and 2.2% respectively.

Market internals were decidedly bullish yesterday. Volume surged by 10.4% on the Nasdaq and by 22.6% on the NYSE. Advancing volume trounced declining volume by a ratio of 12.8 to 1 on the NYSE and a ratio of 9.6 to 1 on the Nasdaq. It is safe to say that yesterday was an "accumulation day" across the board. An accumulation day is formed when the main stock market indexes close higher AND on higher volume. When a market is trying to reverse to the upside, these accumulation days are important because they are indicative of buying amongst mutual funds, hedge funds, banks, and other institutions that move the market.

In the June 5th issue of The Wagner Daily stock newsletter, we stated that, "â€Ã,¦the ProShares UltraShort Oil and Gas ETF ($DUG) formed a distinct bearish reversal candle and could offer a buying opportunity on a pullback into support near its 10-day and 20-day moving averages. On a pullback buy entry, we look for an ETF to undercut a key moving average or support level, and form a reversal candle. The reversal candle then serves as the pivot for a possible trade entry. In this example, the potential long entry would occur on a move above the reversal candle (see first chart from June 5th below)." Yesterday, on high volume, DUG sold off sharply and closed just above its 20-day. If DUG can next "undercut" its 20-day EMA and form a bullish reversal candle (see second chart of DUG below), it could offer a possible buy entry above the high of that bullish reversal bar:





So far, DUG is playing out as we had anticipated (compare the first and second charts). If it now follows through with the bullish reversal bar, we will list it as a potential entry for Wagner Daily subscribers in the "watchlist" section of the newsletter. As with all inversely correlated "short ETFs," which tend to underperform their underlying index with longer holding periods, any entry into DUG will be a very short-term swing trade.

Several days ago, after the main stock market indexes tested key support of their 200-day moving averages, we suggested stocks could be in the beginning stages of a bullish reversal. Yesterday's accumulation day means this indeed could be happening. However, we now need to see another strong accumulation day and avoid further distribution (higher volume selling) If we were to see a significant distribution day on the heels of today's accumulation day, it would be a clear signal that market bears are still in control. So, we remain in "SOH mode" (sitting on hands), but ready to take action if our market timing system provides the proper signals.

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.