Stocks gapped higher on the open, but failed to follow through and basically chopped around all session long. Most averages closed up on the day, about 0.4% to 0.6% higher, with the NASDAQ 100 and Midcap S&P 400 noticeable laggards. The NASDAQ 100 was held down by the selling in semiconductors, sending the Market Vectors Semiconductor ETF ($SMH) back below the 50-day MA, down 2.1%. While $SMH does not have to lead the market higher, it would not be a good sign if support doesn't kick in at around the 50-day MA during the next two weeks.

Turnover picked up across the board, and while it is a positive to see some accumulation, the market has yet to put in a strong follow through type day to confirm that a potential, intermediate-term bottom is in place. For those who are new to our service, a follow through day occurs when either the S&P 500 or NADSAQ rallies at least 1.5% on higher volume.

As mentioned in yesterday's report, the relative strength in the small-cap Russell 2000 ETF ($IWM) is impressive, as it has already established a new closing high for the year, while the S&P 500 and NASDAQ Composite struggle to reclaim the 50-day MA. A short-term pullback to or near the rising 10-week MA would present us with a low risk entry point, around the $98.50 - $99 level.



Although our market timing model is in neutral mode, market conditions are improving, and as long as the major averages can hold at or near the 50-day MA, then we should eventually see a decent rally emerge.

Money continues to flow out of foreign markets and in to the U.S. as of late. Asian ETFs have been under distribution the past few months, while the charts of "BRIC" countries (Brazil, Russia, India, and China) are breaking down and in danger of rolling over.

$EWZ (Brazil) has already taken the plunge, with a nasty selloff the past six weeks. The Russia ETF ($RSX) is in bad shape and could potential roll over soon. Looking at the weekly chart of the inverted Direxion Daily Russia Bear 3X ($RUSS), we see a clear downtrend line breakout, followed by the 10-week ma crossing above the 40-week MA, signaling a change in trend. The price action has tightened up the past few weeks as well. $RUSS is an inverted ETF, meaning that it will go higher if $RSX sells off. Further weakness in Russia could lead to a move to the $40 level in $RUSS.



We added one new ETF to the portfolio yesterday, as $FDN triggered a buy entry on the open. We also added two new stock positions in $SLCA and $TUMI. $TUMI followed through on the entry with a 3% gain on a pick up in volume.

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.