Holding support of their previous day's lows, stocks rebounded modestly yesterday, with the Dow being the only index to finish in negative territory. Stocks trended higher in the morning, then traded in a tight, sideways range throughout the rest of the day. This time, small and mid-cap stocks led the charge. The small-cap Russell 2000 Index ($RUT) and S&P Midcap 400 Index ($MID) rallied 0.9% and 0.6% respectively. The Nasdaq Composite Index ($COMPQ) rose 0.5%. The S&P 500 Index ($SPX) edged 0.1% higher, while the Dow Jones Industrial Average ($DJIA) was lower by the same percentage. Overall, it was another uneventful day with the exception that small and mid-cap stocks finally caught a bid. As we've been discussing over the past week, this is more important than it appears on the surface because the stock market has been lacking the critical leadership of small and mid-cap growth stocks.

Turnover was slightly lower across the board, preventing the Nasdaq from registering a bullish "accumulation day." In the NYSE, total volume was 10% lighter than the previous day's level. Trading in the Nasdaq eased 2%. It was the eighth straight day of lighter than average volume in the Nasdaq. As we have been mentioning for several weeks, such a light pace of trading is typical during the month of August. Although total volume was lighter than the previous day's levels, the ADV/DEC volume ratio was positive in both the NYSE and Nasdaq, where advancing volume exceeded declining volume by ratios of approximately 1.7 to 1.

In the August 10 issue of The Wagner Daily and in this blog post, we pointed out the relative strength (daily chart) and potential breakout to a new all-time high (weekly chart) in iShares Mexico Index ($EWW). Over the next two days that followed, EWW drifted lower, then "undercut" near-term support of its 20-day exponential moving average yesterday morning (August 15), but rallied to settle 0.9% higher by the closing bell. This resulted in the formation of a bullish reversal candle that coincided with an "undercut" of an obvious level of support. These, as we frequently discuss, are the best types of pullback entries because the "undercuts" of support absorb overhead supply that enable the ETF to more easily move higher. Now, the ETF is just 21 cents below our trigger price for partial swing trade buy entry (above the high of August 13). On the daily chart below, notice how a rally above the high of the past three days also correlates to a breakout above the short-term downtrend line from the August 6 high:



Regular subscribers should note our exact share size, entry, and exit prices for the EWW swing trade setup on the ETF trading watchlist section of today's newsletter. Note that the intial entry will only be on partial share size, with the remaining shares being added on a breakout above resistance to a new all-time high (above the $64.65 area). There are a few other ETFs on our radar screen for potential buy entry, but we are looking for pullback entries right now. If any of these ETFs near our potential trigger prices, we will be sure to highlight them here in the newsletter.

Our position in iShares Nasdaq Biotech Index ETF ($IBB) acted well yesterday, and is currently showing up on our preset technical stock screener as the top-ranked Potential Breakout entry (based on top RS rating). The ETF gained 0.9% and cleared horizontal price resistance of a recent "swing high" yesterday. With a little cooperation from the market, IBB should be well-positioned for a rally to test its all-time high that was set on July 27. Our other open ETF position, iShares Dow Dividend Index ($DVY) continues to hold in a tight range near its high. We sold our long position in individual stock Cambrex Corp ($CBM) for a quick 8% gain yesterday.

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.