Stocks ended the session mixed, as volume faded following Friday's options expiration. The Nasdaq and the S&P MidCap 400 put in the best showings as both indices tacked on 0.8%. The small-cap Russell 2000 added 0.2% while the S&P 500 managed a slim 0.1% gain. The Dow Jones Industrial Average was the only loser on the session. The blue chip index faded 0.2%.

The S&P Select Consumer Staples SPDR ETF (XLP) has been one of the strongest ETFs in the market over the past two months. Last Thursday, on a burst of volume, XLP unsuccessfully attempted to break out of its three month trading range. Nonetheless, this ETF is now poised to see a new 52-week high and could provide a buying opportunity either on a pullback or on a volume fueled move above the three day high ($34.65). Because obvious breakouts above recent swing highs often fail, ideally we would like to see XLP pull back and form a reversal candle near its 20-day and 50-day moving averages. The high of the reversal candle would then serve as the buy pivot for a possible long entry. We will be monitoring XLP closely as a potential long candidate.



Now that we have a buy signal in the market, we now need confirmation that the market is in full blown buy mode. This confirmation should come in the form of stocks breaking out to new highs and bullish volume patterns on both the NYSE and Nasdaq. However, should we see a big distribution day on the heels of the current buy signal, there is a strong likelihood that the market is not yet ready to move to higher ground. Just as the market was only one day removed from a buy signal last week, we are now potentially just one day removed from a sell signal this week. Consequently, we are keeping our position size in check.

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.