For the second day in a row, stocks apathetically oscillated in a narrow, sideways range throughout the day before settling with mixed results on lighter trade. Stocks spent most of the session in slightly positive territory, but were unable to find serious traction at any time during the day. Although the blue chip Dow Jones Industrial Average slipped 0.1% yesterday, the Nasdaq Composite rose 0.3%. The benchmark S&P 500 Index was unchanged, but the S&P Midcap 400 and small-cap Russell 2000 indices gained 0.2% and 0.3% respectively. The slight relative strength in small and mid-cap stocks yesterday was notable because, as we recently wrote about in this blog post, bearish divergence and lack of leadership among small and mid-cap stocks is of the main problems we have been seeing with the current rally in the U.S. markets. In the coming days, we will be monitoring the small and mid-cap indexes closely to see if they continue to outperform the large caps.

Light turnover confirmed yesterday's overall apathetic mood of the market. Total volume in the Nasdaq eased 10%, while volume in the NYSE was 11% lighter than the previous day's level. Despite the slower pace of trade, it's positive that advancing volume held the upper hand over declining volume by a margin of 3 to 2 in the NYSE. The Nasdaq adv/dec volume ratio was nearly the same (1.4 to 1). Since yesterday was essentially a day "consolidation day" for the broad market, the lighter volume across the board was positive because it tells us the bears were not selling into strength of the recent gains. When the stock market is rallying higher, we want to see increasing volume to confirm the gains. But a healthy market should be marked by declining or lighter volume during the periods of price consolidation (such as the past two days).

With the U.S. markets rather lethargic and showing a lack of conviction, we have been scanning for potential trade setups among the international ETFs. Most of the international ETFs we looked at have badly damaged weekly chart patterns that we are not interested in trading because it goes against our core trading strategy. But one international ETF in a nice consolidation pattern, poised for a breakout to a new record high is iShares Mexico ($EWW). On the long-term monthly chart below, which shows you the "big picture" of its trend, notice that EWW is presently testing resistance of its all-time high. If it breaks out above the horizontal line annotate on the chart, there will be a complete lack of overhead supply and price resistance that should enable EWW to zoom higher:



Drilling down to the shorter-term daily chart pattern on the following chart, notice that EWW has been forming a valid base of consolidation near its high for the past four to five weeks. The daily trading range is also tightening up, which is positive, while the 20-day exponential moving average (EMA) is rising to provide support. Finally, volume has also been lighter than average during the consolidation:



As the daily chart shows, a rally above the $63.85 level would correspond to a breakout above its recent highs, which converge with resistance of its April 2012 high. Although resistance of its all-time high (shown in the first chart) is actually about one point higher, we woudl be comfortable with buying a breakout just above the $63.85 level because momentum from such a breakout would likely cause EWW to surge through that price resistance from years ago. Alternatively, one could buy a partial position on a move above $63.85, and then add to it on confirmation of the rally above the $65 area. EWW is unlikely to move above our trigger price in today's session, but it will be on our official ETF trading watchlist as a potential breakout entry next week.

Overall, the stock market continues to show considerable resiliency, as it continues to consolidate on lighter volume at its three-day highs. The price and volume action is actually reminiscent of what we saw when the market broke out of its summer slump in 2011. At least for the moment, it appears the market bulls are maintaining control in what has been a choppy environment. If we can just see continued improvement in leadership among small and mid-cap growth stocks, that would surely be a positive for the broad 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.