Here are the levels SMH and BBH could rally up to

Yesterday's session was an erratic and volatile one that resembled a roller-coaster ride, but the major indices eventually finished the day lower, as volume increased across the board. By mid-day both the S&P 500 (SXP | Quote | Chart | News | PowerRating) and Dow Jones (DJX | Quote | Chart | News | PowerRating) had fallen all the way down to the previous day's lows, while the Nasdaq (COMP | Quote | Chart | News | PowerRating) had retraced most of the prior day's range as well. After setting their morning lows, the major indices attempted to reverse and retraced more than half of their morning losses, but the recovery was short-lived and caused the broad market to drop to new intraday lows one hour before the close. While the failed mid-day rally and subsequent setting of new lows would normally have followed through to more weakness into the close, the broad market reversed once again and the major indices climbed back to close in the upper third of their intraday ranges. The S&P 500, Nasdaq Composite, and Dow Jones Industrials finished the wild ride with losses of 0.3%, 0.4%, and 0.5% respectively. The S&P 400 Smallcap Index lost 0.4% and the small-cap Russell 2000 closed 0.3% lower.

Total volume in the NYSE increased by 22% yesterday, while volume in the Nasdaq was 18% higher than the previous day's level. The broad-based losses, combined with the higher turnover, caused both the S&P 500 and Nasdaq to register another bearish "distribution day," the fifth one in the past four weeks. Considering that light volume failed to confirm the prior day's rally, it was not surprising that volume surged higher when the sellers returned. Though it was positive that the major indices showed strength during the final hour, the losses on higher volume still represented a session of institutional selling overall.

Both the S&P 500 and Dow Jones Industrials closed yesterday near the middle of their prior day's ranges, which means the market could be choppy today as well. Yesterday's action also provided several contradictory signals for the predicted short-term direction of the major indices. The positive is that both the S&P and Dow twice found support at their respective lows of the prior day. We have circled that area of support on the 15-minute charts of both the S&P and Dow below:

While the short-term double bottoms in the S&P and Dow are positive, note on the charts above that both indices were unable to fill their downside gaps from the open. Therefore, expect those gaps to act as resistance going into today. On the S&P 500, resistance is now at the 1,209 to 1,210 area, while the Dow has resistance all the way up to the 10,435 area. If the S&P and Dow are able to close yesterday's gaps, resistance of the August 29 highs is important too. Beyond that, even more resistance of the 20 and 50-day moving averages will come into play (as illustrated in yesterday's Wagner Daily). Because of these conflicting signals, we recommend you avoid trading in SPY and DIA at this time, at least until the broad market figures out where to go from here.

The Nasdaq Composite followed a similar pattern as the S&P and Dow yesterday, but showed more relative strength throughout the session. When it sold off in the morning, it found support near the prior afternoon's consolidation instead of the dead lows of the day. Then, when it recovered into the close, it closed only a couple points off its morning high. As such, we would not be surprised to see the Nasdaq make another run at its 50-day moving average, which perfectly acted as resistance yesterday. Obviously, it remains risky to be aggressively long the Nasdaq unless it can recover back above its 50-day MA and hold there for more than a day or two. That being said, however, both the Biotech (BTK | Quote | Chart | News | PowerRating) and Semiconductor (SOX | Quote | Chart | News | PowerRating) indexes remain poised for upside breakout, which could easily pull the Nasdaq higher. We like both BBH (BBH | Quote | Chart | News | PowerRating) and SMH (SMH | Quote | Chart | News | PowerRating) ong only if they rally above their August 29 highs. If SMH is able to do so, it should rally at least up to its August 2 high of 38.32, at which point it would be wise to trail a tight stop in case a double top forms. In BBH, a breakout above 193 should push the ETF up to test its August 3 high, just below the 197 level.