Stocks attempted to rebound from Thursday's "distribution day" by gapping higher on last Friday's open, but traders quickly sold into strength. After trading near unchanged levels throughout the morning, the major indices fell into negative territory at mid-day, but a modest rebound in the early afternoon pushed the broad market back towards the flat line. The Nasdaq Composite settled 0.1% lower, while the S&P 500 and Dow Jones Industrial Average eked out matching gains of 0.1%. The small-cap Russell 2000 and S&P Midcap 400 indices were lower by 0.2% and 0.1% respectively. All the main stock market indexes closed near the bottom third of their intraday ranges.
Total volume in the Nasdaq was 7% lighter than the previous day's level. Turnover in the NYSE increased by 5%. The slight changes in trading activity were rather irrelevant, as volume levels remained well below average ahead of the New Year's Day holiday. In both exchanges, declining volume marginally exceeded advancing volume.
Since breaking out above the upper boundary resistance of its "wedge" pattern on December 21, the StreetTRACKS Gold Trust (GLD) has rallied back to test its prior all-time high. It already set a new closing high last Friday, and is less than a point below its intraday high from November 8. On the daily chart of GLD below, notice how smoothly the ETF followed through to the upside after breaking out of the wedge pattern:
Although we did not buy GLD, we remain long the closely correlated Market Vectors Gold Miners ETF (GDX). Because it formerly showed relative weakness, GDX is still below its all-time high. However, it already broke out above its 7-week downtrend line and is now showing relative strength to the movement in GLD. Presently, GDX is showing a marked to market gain of just over one point since our December 26 entry, and we expect momentum to pick up further in the coming week.
Another commodity ETF testing its all-time high is the U.S. Oil Fund (USO), which loosely follows the price of crude oil. Though it formed a bearish candle on Friday, a rally above that day's high would be quite bullish and correspond to a fresh historical high:
With this type of pattern, be careful not to "jump the gun" and buy before the actual breakout to a new high. Doing so could easily lead to rapid loss if the breakout fails and a "double top" forms instead. However, we like the pattern for long entry on a breakout above the horizontal line shown above.
As per last week's analysis, stocks are likely to remain choppy in the short-term because the major indices are near pivotal areas of support/resistance. Expect chop and indecision until clear resolution presents itself in one direction or the other. Obviously, this goes doubly for today's session, ahead of tomorrow's New Year's Day holiday. Expect volume to slow to a crawl in the afternoon, as traders head out to make their preparations for tonight's fun events.
The U.S. markets will be closed for the New Year's Day holiday on January 1, 2008. As such, The Wagner Daily will not be published tomorrow, but regular publication will resume on Wednesday, January 2. Wishing you and yours all the best in 2008!