These 2 setups may trigger today

The broad market began the new week
on a relatively quiet note Monday,
as the major indices continued to consolidate near last week’s highs. The S&P
500
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Dow Jones Industrials
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advanced 0.2% and the Russell 2000 Index
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the upper half of their intraday ranges, though not at the highs.

Total volume in the Nasdaq was 2% higher than the previous
day, which gave the index another bullish “accumulation day,” but turnover in
the NYSE declined by 3%. Obviously, it would have been better to see volume rise
across the board on a day of gains, but yesterday’s action was more of a
consolidation than a trending day. Market internals were positive, but not by a
wide margin. Advancing volume exceeded declining volume in both exchanges by
less than 3:2. Nevertheless, stocks held on to last week’s gains and a look at
the price to volume action indicates sellers were simply not around.

Both the Nasdaq Composite and Nasdaq 100 indices closed
yesterday at pivotal levels. As the chart below illustrates, the Nasdaq
Composite closed right at horizontal price resistance of its prior high from
September 12:

If the market is going to correct from here, this resistance
level on the Nasdaq provides the perfect excuse for traders to sell into
strength. However, the longer the Nasdaq consolidates near its recent highs, the
more likely it will soon break out above that resistance level. For now, the
Nasdaq and the other major indices show no signs of a price correction, but we
just want to give you a heads up on that important resistance level. Similarly,
the Nasdaq 100 Index is sitting right at resistance of its 52-week high from
November 2004. We illustrated this with QQQQ
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weekly chart of the Nasdaq 100 obviously looks the same:

Not only is the Nasdaq at resistance of a prior high, but the
Dow will now test its prior weekly high as well. As you can see on the chart
below, the Dow finished above its prior high on a closing price basis, but is
still below the intraday high of October 3:

Going into today, our bias remains cautiously bullish overall.
Several sectors such as Biotechs and Semiconductors are showing a lot of
relative strength and appear poised to move higher. We remain long BBH (Biotech
HOLDR)
(
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of line considering the horizontal price resistance levels highlighted above. As
for the short side, the only broad-based ETF we would consider is MDY (S&P 400
Midcap)
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PowerRating), as it remains below resistance of its daily downtrend line from the
August high:

But only a break below yesterday’s low would trigger a
potential short entry. If that low is not broken, the consolidation could result
in a breakout to a new high. We’re prepared for either a breakout in QQQQ (and
other indices) or a resumption of the primary downtrend in MDY (among others).
Be alert and ready to change sides at a moment notice, as we are at pivotal
levels now.

Open ETF positions: