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The major indices wrapped up a positive week with a quiet session of trading last Friday. Taking a healthy rest from two straight days of solid gains, stocks oscillated in a tight, sideways range throughout the entire session. The broad-based S&P 500 was unchanged, but the Nasdaq Composite, held down by negative earnings reports from Google and Microsoft, fell 1.3%. Conversely, the Dow Jones Industrial Average gained another 0.4%. The small-cap Russell 2000 and S&P Midcap 400 indices slipped 0.5% and 0.2% respectively. The S&P 500 and Dow Industrials both finished near their intraday highs, while the Nasdaq Composite closed at the middle of the day's range.

As we often see on the first rest day following a sharp rally, turnover receded across the board. Total volume in the NYSE declined 15%, as volume in the Nasdaq eased 11% below the previous day's level. Considering that the Nasdaq lost more than one percent, it's healthy that the decline occurred on lower volume. Market internals were not too bad either. In the NYSE, advancing volume fractionally exceeded declining volume. The Nasdaq adv/dec volume ratio was negative by a ratio of less than 3 to 2.

Institutional sector rotation has become very apparent over the past several weeks. Coming into July, energy, steel, and agriculture/fertilizer were clearly the strongest sectors in which to be positioned, but that has clearly changed. ETFs in those industries are now showing the weakest daily chart patterns, while biotech has risen to the top. Institutions such as mutual funds have bylaws that limit the percentage of cash exposure they're allowed to carry in their portfolios. As such, their money must always be at work, somewhere in the market. As sector traders, our job is simply to determine where that institutional money is flowing, then ride along the coattails of the "smart money." That's why we bought the Biotech HOLDR (BBH) at the beginning of the month, when institutional money flow into sector became too strong to ignore.

With the exception of the numerous biotech ETFs, which are consolidating at or near their highs, most sector ETFs are merely bouncing off their lows from the protracted downtrends they've been stuck in. Those ETFs may offer opportunities for ultra short-term momentum traders, but there is too much overhead supply to hold them long for more than a few days without quickly selling into strength for a quick profit (as we recently did with Ultra Russell 2000 ProShares [UWM]). With the exception of biotech, and perhaps gold/silver, there are frankly very few low-risk opportunities on the long side of the market right now (unless you're an ultra short-term trader). Even though the major indices have bounced several percent over the past few days, don't feel as though you're missing much if you didn't jump back on the buy side of the market.