Stocks caught a bit of a relief bounce yesterday, as the major indices recovered a significant portion of the previous two days of losses. The Dow Jones Industrial Average ($DJIA) gained 0.5% and the S&P 500 Index ($SPX) rallied 1.0%. The Nasdaq Composite Index ($COMPX) jumped 1.4%, but the index also suffered the largest losses during the pullback. The small-cap Russell 2000 Index ($RUT) and S&P Midcap 400 Index ($MID) climbed 1.2% and 1.1% respectively. All the main stock market indexes closed in the upper quarter of their intraday highs.

Although stocks registered substantial gains yesterday, lighter volume across the board failed to confirm the advance. Total volume in the NYSE eased 15%, while volume in the Nasdaq was 1% lighter than the previous day's level. Rather than seeing the return of institutional buying, yesterday's rally was apparently more the result of a lack of selling pressure. Nevertheless, market internals were solid. In both exchanges, advancing volume beat declining volume by a margin of more than 4 to 1.

In the September 17 issue of The Wagner Daily trading newsletter, and in this blog post, we provided a chart of the SPDR Regional Banking ETF ($KRE), which was in pullback mode after breaking out to new 52-week highs in mid-September. Although the price action has retreated back to the rising 20-day EMA as we anticipated, the price action as it touched the moving average (on September 25) was ugly because it closed at the lows of the day on a wide-ranged bar. We'll continue to wait for a bullish reversal candle to confirm a low-risk buy entry is in place:



We are already long the Alerian MLP ETF ($AMLP) but the price action is offering a potential second breakout entry, as it continues to consolidate in a tight range above the major moving averages:



The price action has really tightened up on the daily chart since the beginning of July, forming a bullish 10-week consolidation pattern around the rising 200-day moving average (in orange). The slope of the 50-day moving average (in teal) has also been trending higher since bottoming out in mid-July and has provided support on each pullback since late August. A breakout above the congestion area is the trigger.

Although yesterday's light volume was a bit of a disappointment, the market uptrend remains intact with only a few days of distribution in the major averages. With our timing model still in buy mode, we will continue to operate with a bullish bias until there is enough evidence to shift the model into neutral or outright sell mode. Our open ETF positions are currently in good shape, especially our position in United States Natural Gas Fund ($UNG), which is up about 6% from our entry three days ago.

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.