Stocks ended Wednesday's session mixed, amidst relatively flat trade. As we commonly see in August, when much of Wall Street is relaxing in the Hamptons, volume was light as well. The market was noncommittal throughout the day, as all the major indices seesawed in a narrow range throughout the session before settling near the flat line. The Nasdaq Composite eased 0.2%, while the small-cap Russell 2000 similarly edged 0.1% lower. The Dow Jones Industrial Average, S&P 500 and S&P MidCap 400 all eked out gains of 0.1%.

Market internals ended the session mixed. Volume on the Nasdaq was 1.4% lighter than the previous day's level. Turnover in the NYSE eased 12.3%. However, despite the slower pace of trade, advancing volume outpaced declining volume on both exchanges. By the closing bell, the ratio of advancing volume to declining volume was 1.5 to 1 on the NYSE and 1.6 to 1 on the Nasdaq. Overall, yesterday's broad market price action could be considered a consolidation day, so not much could be gleaned from its lethargic price and volume action.

Presently pulling back modestly off its all-time high, the iShares Nasdaq Biotechnology ETF ($IBB) has been showing clear relative strength to the broad market. Since snapping back above support of its 20-day EMA on August 3rd, IBB has been consolidating in a tight range for the past four days. Now, IBB offers a possible swing trade buying opportunity on a breakout above that four-day high of $134.32, with a protective stop below the 4-day low. Subscribers should note our exact entry and exit prices for this trade setup in "today's watchlist" section of this newsletter above. The daily chart of IBB shows the trade setup:



While the IBB swing trade setup above is on a pullback off its recent highs, the United States Natural Gas ETF ($UNG) is setting up as a trend reversal play. Rallying off its lows for the past four months, UNG rose all the way back to resistance of its 200-day MA on July 31, which not surprisingly led to a subsequent pullback. However, the price action is still holding firm near short-term support of its 20-day EMA, and could present a quick momentum-based buying opportunity on a move above its two-day high of $20.49. If it moves above that price, UNG could break out above its 200-day MA on the next test of that pivotal level of long-term price resistance. As such, UNG also appears for subscribers on "today's watchlist" as a potential buy entry. However, note that because this setup is a trend reversal play, rather than an ETF trading near its high, we are only planning to enter as a very short-term trade (2 to 5 days) to capture a swift, momentum-driven pop (if it trades through our trigger price). Because it is a commodity ETF, we also like the low correlation to the direction of the main stock market indexes. The UNG setup is shown below:



Although the broad-based averages are holding firm, leading individual stocks continue to suffer. During yesterday's session, it was $PCLN that got slammed. After the close, it was an earnings-related hit to $MNST, which shed nearly 10% in after-hours trade. Eventually, new leaders will begin to emerge, which will be the missing ingredient to a legimitately strong market that pulls many ETFs along with it. But until then, we will focus on selectively and only lightly trading ETFs with clear relative strength and/or a low correlation to the direction of the stock market. Remember that our market timing model remains in neutral, so we are not yet in a hurry to be aggressive in the market. If the current rally is for real, there will be plenty of time to take advantage of buying opportunities throughout the rest of the year.

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.