After gapping lower on the open, the broad market oscillated in a tight range, in slightly negative territory, for most of the session. However, stocks caught a bid in the final hour of trading, enabling most of the main stock market indexes to finish modestly higher. The Dow Jones Industrial Average and S&P 500 indices tacked on 0.3% and 0.2% respectively. Both the Nasdaq Composite and the S&P MidCap 400 edged 0.1% higher. The small-cap Russell 2000 was the only major index to lose ground, as it slipped 0.2% on the session. As mentioned several times last week, we're keeping a close eye on the small and mid-cap indexes, as new leadership in those growth indexes may be the impetus the market needs to break out to the upside.

Market internals were mixed on Friday. Turnover on the Nasdaq fell by 6.9%, as volume on the NYSE receded 11.8%. In the Nasdaq, advancing volume was on par with declining volume, but the NYSE adv/dec volume ratio was positive by a ratio of nearly 2 to 1. The light volume suggests that institutional investors were absent from the market last Friday, which was not surprising given the typically slow month of August.

Over the past several weeks, the iShares Dow Jones Select Dividend Index ETF ($DVY) has been consolidating near its multi-year high. With the exception of one day (July 31), volume has also been coming in lighter than average (a bullish sign when stocks are consolidating for potential breakout). Over the past three days, the trading range has tightened up substantially, which is often a precursor to a breakout from consolidation. Just below last Friday's low lies near-term support of the 20-day exponential moving average (EMA). Now, we are targeting DVY for a potential breakout entry, which would occur on a volume-fueled move above last Friday’s (August 10) high of $57.59. This buy setup in DVY is an "official" play that has been added to today's watchlist. Regular subscribers of The Wagner Daily should note our exact entry, stop, and target prices on the watchlist. The daily chart pattern of DVY is shown below:



The main stock market indexes have drifted in a tight, sideways range for the past four sessions. Since volume during this period has been light, it is a sign the bulls are merely sitting on the sidelines, rather than selling into strength of the recent move. The longer stocks consolidate near the highs of the recent rally, the greater the odds of a resumption of the upward trend, at least in the near-term. It's also notable that the major indices closed at their intraday highs last Friday, which is a positive change from the weak closing action of the preceding three days. Nevertheless, don't forget that the Nasdaq, S&P 500, and Dow Jones Industrial Average all remain at or near key resistance levels, so caution on the long side is warranted. Further, leadership among growth stocks continues to be lacking. Given the mixed signals the stock market has been displaying lately, we're quite comfortable with our market timing model staying in "neutral" mode for now.

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.