Biding their time ahead of the Labor Day holiday, stocks stubbornly grinded their way higher yesterday, enabling the major indices to close with moderate gains. The Nasdaq Composite rallied 0.9%, as the S&P 500 and Dow Jones Industrial Average scored matching gains of 0.8%. Relative strength in small and mid-caps helped the Russell 2000 and S&P Midcap 400 to register identical advances of 1.3%. Showing indecision in the final hour, the main stock market indexes finished just in the upper third of their intraday ranges.

As anticipated, turnover remained light. Total volume in the NYSE receded 3% below the previous day's level, while volume in the Nasdaq ticked 7% higher. Though the Nasdaq technically registered a bullish "accumulation day" by advancing on higher volume, it would be deceiving to say yesterday's gains were driven by institutional buying. This is because volume remained well below its 50-day average level, just as it has been for more than two weeks. As we approach the three-day holiday weekend, trading may slow to a crawl, but the good news is that volume should begin returning to average levels next week. When it does, you'll find overall trading conditions, especially trends, will improve as well.

At the beginning of the week, we said, "As we enter one of the traditionally slowest weeks of the year, the main stock market indexes continue to exhibit mixed signals. The Nasdaq Composite bounced off support of its intermediate-term uptrend line last week, but now must contend with resistance of its 200-day MA. It's positive that the S&P 500 and Dow Jones Industrial Average both reclaimed their 20 and 50-day moving averages, but a lot of overhead supply remains from earlier in the month. With the major indices essentially in "no man's land," expect continued chop and whippy price action." Throughout the first three days of the week, that's exactly what we've experienced so far. Take an updated look at the daily chart of the S&P 500:

The two blue horizontal lines on the chart above mark the short-term support and resistance levels of the S&P 500. Notice how the 10-day moving average (the dotted line), 20-day exponential moving average (the beige line), and 50-day moving average (the teal line) have all converged in the middle of that horizontal channel. This clearly illustrates why we say the index is in "no man's land." In the near-term, the broad market could easily snap in either direction, depending on whether the bulls or bears win the current tug-of-war. But it's a losing proposition to trade the market as long as the S&P remains in this sideways range. The daily chart of the Dow Jones Industrial Average looks very similar to the pattern of the S&P 500:

Is the pattern of the Nasdaq Composite looking any better? Not at all. The Nasdaq closed right at its 20-day EMA, is sitting above support of its 50-day MA, and below resistance of its 200-day MA. Nice slop:

Based on the chart patterns above, you can see why we've been saying there's no need to worry about entering new positions until the major indices make a decisive break in one direction or the other. We know from past experience that chart patterns like these, combined with much lower than average overall market volume, is a recipe for overtrading and churning one's account. As an individual investor/trader, you have one major advantage over institutions -- the ability to stay on the sidelines until conditions improve. Most mutual funds, on the other hand, have bylaws that force them to be fully invested at all times. Take advantage of that edge you have by patiently waiting for the market to clearly show its hand. When it does, you'll be fresh and ready to make a move in whichever direction it breaks. Again, this will probably not happen until sometime next week, when traders and investors start snapping out of vacation mode.

Open positions (coming into today):


DXD long (250 shares from August 18) - bought 60.60, stop 59.77, target 66.40, unrealized points = + 1.14, unrealized P/L = + $285

TAN long (350 shares from August 27) - bought 25.30, stop 23.39, target 29.30, unrealized points = + 0.51, unrealized P/L = + $179

IYH long (350 shares total - bought 250 on Aug. 5, added 100 on Aug. 14) -
bought 66.86 (avg.), stop 65.57, target 71.12, unrealized points = (0.29), unrealized P/L = ($102)


Closed positions (since last report):


IBB long (200 shares from August 21 re-entry) - bought 86.18, sold 84.87, target new high (will trail stop), unrealized points = (1.31), unrealized P/L = ($266)


Current equity exposure ($100,000 max. buying power):


$47,768

Notes:


• IBB stopped us out by a few cents yesterday, but recall that we re-entered with minimal risk of a much smaller than average loss (less than $300). IBB could easily reverse from here, but as with most sectors, momentum is not likely to return until at least next week. At that time, we'll re-assess and consider re-entering one of the biotech ETFs (IBB, XBI, PBE, BBH) if they act well. In the meantime, it's too choppy to consider a re-entry.
  
  
• Per yesterday's pre-market setup, we bought TAN exactly five minutes after the market open. It subsequently acted well and is already showing a small gain.
  
  
• Reminder to subscribers - Intraday Trade Alerts to your e-mail and/or mobile phone are normally only sent to indicate a CHANGE to the pre-market plan that is detailed in each morning's Wagner Daily. Since we followed the IBB stop exactly as listed in yesterday's Wagner Daily, and also bought TAN as per our pre-market plan, no alerts were sent to indicate action was taken. We sometimes send a courtesy alert just to confirm action that was already detailed in the pre-market newsletter, but this is not always the case. If no alert is received to the contrary, one should always assume we're honoring all stops and trigger prices listed in each morning's Wagner Daily. But whenever CHANGES to the pre-market stops or trigger prices are necessary, alerts are sent on an AS-NEEDED basis. Just a simple note of clarification here.
  
  
  
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