Stocks reversed higher with respectable gains across the board, but once again volume failed to confirm the move. Since May 9, the Nasdaq Composite has rallied at least +0.5% in five sessions with all sessions on lighter volume.

The Dow Jones rallied 1.0% higher on lighter volume but did close back above the 50-day MA. The Nasdaq 100, Dow Jones, S&P 500 are above the 50-day MA, while the Nasdaq Composite, S&P 400, and Russell 2000 are below. The only index not within striking distance of the 50-day MA is the small-cap Russell 2000, which is is still below the 200-day MA.

Nasdaq 100 ETF ($QQQ) closed above the prior high of 5/13 and has held above the 50-day MA the past three sessions.

The daily chart is beginning to build momentum, with the price action now clearly above the 10 and 20-day moving averages. The 20-day EMA has turned up the past two weeks and is about to cross above the 50-day MA (positive sign). The 50-day MA is still pointing lower and will eventually need to flatten out.



The Nasdaq Composite has been able to hold the 20-day EMA the past few days and only needs another 0.5% to recapture the 50-day MA.

So the big question is can the Nasdaq reclaim the 50-day MA and hold, which would probably spark the S&P 500 to new highs. Or, will the S&P 500 break down below what is a very strong support level at the 50-day MA to join the Nasdaq and Russell 2000?

Our scans have improved the past few weeks (more bullish action) due to the averages holding on to swing lows. That being said, broad market conditions are choppy and not very reliable for heavy trading on either side of the market.

One could make the case for having some exposure on the long and short side using relative strength and weakness for stock/ETF selection.

For those who are uncomfortable shorting, keep long exposure light until conditions improve.

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.