Stocks attempted to rebound from their four-day losing streak yesterday morning, but the rally attempt fizzled out in the afternoon. By day's end, most of the major indices settled near the flat line. The benchmark S&P 500 was flat, the Nasdaq Composite slipped 0.3%, and the Dow Jones Industrial Average gained 0.1%. Small and mid-caps showed significant relative weakness. The Russell 2000 and S&P Midcap 400 were lower by 1.1% and 0.7% respectively. All of the main stock market indexes closed in the bottom third of their intraday ranges.
Total volume in both the NYSE and Nasdaq eased 2% below the previous day's level. Turnover in both exchanges was below 50-day average levels, as it has been since December 21. Declining volume in the NYSE edged out advancing volume by a margin of 3 to 2. The Nasdaq ratio was only fractionally negative.
We sold our long position in the Market Vectors Gold Miners ETF (GDX) into yesterday's open, as it approached our original price target of $49.84. After locking in that 8% gain, we subsequently bought the Oil Service HOLDR (OIH) when it broke out above the high of its short-term consolidation. Showing a bit of weakness in the afternoon, OIH slid back down to close at its pivot. Going into today, we will be keeping a tight leash on OIH to guard against a failed breakout at the new high. We plan to cut the loss quickly if it falls below yesterday's low, as the current market environment is not forgiving with long positions that show less than ideal price action.
Over the past two weeks, we have extensively discussed the bullishness in a variety of oil and gold-related ETFs. With commodities showing such strength in general, one might also consider buying an ETF that is comprised of a variety of commodities. The DB Commodity Index Fund (DBC) fits the bill quite nicely. Even better is the bullish technical pattern its daily chart is exhibiting:
On December 24, notice how DBC perfectly bounced off support of its 50-day MA. One week later, it broke out above resistance of its 7-week consolidation. That prior resistance, around the $32 level, should now act as support on any pullback. DBC, along with other commodity ETFs such as GLD and USO, is one of the lowest risk ETFs to be positioned long right now.
With the surging prices in oil, alternative energy stocks, particularly solar, continue to shine brightly. The PowerShares Clean Energy ETF (PBW) is gently pulling back from its all-time high set one week ago. A rally above its hourly downtrend line should lead to a resumption of the primary trend, as well as a quick move to a new record high. The daily chart is shown below:
PBW attempted to reverse above its short-term downtrend line yesterday morning, but stalled near resistance of the January 2 opening high. Therefore, we now must wait for a breakout above the 2-day high, which should set bullish momentum in motion. The Market Vectors Global Alternative Energy ETF (GEX) has a similar pattern and provides a little more volatility than PBW. However, its average daily volume is much lighter. Because ETFs are synthetic instruments that follow the price of the underlying stocks, liquidity is never an issue. Nevertheless, the bid/ask spread is sometimes wider when the average daily volume is lighter. We'll be monitoring both PBW and GEX over the next several days, and will send an intraday e-mail alert to subscribers of The Wagner Daily if either crosses its trigger price for entry.