After brushing off initial opening weakness, the Nasdaq Composite rallied 0.7% and recovered more than half of its previous day's loss, but an afternoon selloff caused the index to close flat. The other indices showed relative strength by retaining most of their morning gains. The S&P 500 gained 0.4% and the Dow Jones Industrial Average advanced 0.5%. Small and mid-cap stocks, which have been lagging the broad market for several months, suddenly perked up. The small-cap Russell 2000 and S&P Midcap 400 indices rallied 1.0% and 0.8% respectively.

Turnover increased across the board, which could be considered positive for the S&P, but negative for the Nasdaq. Total volume in the NYSE was 12% higher than the previous day's level, enabling the S&P to register a bullish "accumulation day." In the Nasdaq, volume increased by 5%. When an index closes flat, but on higher volume, it is often representative of bearish "churning" because more shares are changing hands, but prices go nowhere. "Churning" is usually a sign of institutional selling into strength, but the Nasdaq's minimal turnover increase of 5% was not substantial enough to declare yesterday's session as "churning." Market internals were mixed. Advancing volume in the NYSE exceeded declining volume by a ratio of 2 to 1, but the Nasdaq ratio was fractionally negative.

In yesterday's newsletter, we highlighted two ETFs that we were stalking for potential long entry, one on a pullback and the other on a breakout. With the Biotech HOLDR (BBH | Quote | Chart | News | PowerRating), we were waiting for a pullback to support of the breakout, around the $193.25 level. Yesterday, BBH pulled back to within 70 cents of that level before finishing at $194.66. Since strong stocks and ETFs often pullback to near the breakout level without actually touching it, there is a chance that the short-term correction may already be finished. However, rather than merely guessing, we will analyze today's action to see if a base forms near yesterday's low. If it does, we would then consider buying a breakout above the short-term hourly downtrend line that will form. Remember the most basic tenet of technical analysis states that a prior resistance level becomes the new support level after the resistance is broken. That's why it is a low-risk play to buy BBH on a pullback to the $193 to $194 area. As you can see on the daily chart below, BBH nearly tested new support of its breakout level yesterday:

The other ETF we were stalking for potential entry was the StreetTRACKS Gold Trust (GLD | Quote | Chart | News | PowerRating), which we planned to buy on a breakout above its long-term weekly downtrend line. On the open, GLD gapped above the intraday high of the previous day, then trended steadily higher throughout the session, finishing at its best level of the day. Not only did its opening gap put GLD above the weekly downtrend line, but the gap above the previous day's high also increased the odds of further upside momentum in the short-term. Below is an updated daily chart of GLD, which we bought at the 63.90 level:

Human nature might tell you to avoid a stock that closed weak the previous day and then gapped open above that day's high, but that "fear" is exactly why this type of play works. When GLD gapped open above its downtrend line, it attracted traders (such as ourselves) who were waiting for the breakout. That fueled GLD even more, which caused the investors and traders who dumped the previous day, afraid to miss the move, to get back in at a higher price. This is why opening gaps above the high of a previous down day are often among the strongest days.

Though the Nasdaq is definitely weaker, the S&P and Dow remain indecisive and rather choppy. Unfortunately, they may remain that way until earnings season has concluded. Be prepared for a big wave of earnings reports over the next three days.