Stocks oscillated in a wide, sideways range throughout most of yesterday's session, but another late-day rally pushed the major indices to firmly higher ground by the closing bell. Turnover also rose during the afternoon advance, indicating continued institutional support. Driven by strength in the tech arena, the Nasdaq Composite led the way, climbing 2.7%. The S&P 500 advanced 1.6% and the Dow Jones Industrial Average gained 1.2%. As they have done throughout most of the recent rally, small and mid-cap stocks kept pace with the Nasdaq. The Russell 2000 and S&P Midcap 400 indices jumped 2.8% and 2.7% respectively. A last-minute dip caused the main stock market indexes to finish off their best levels of the day, but they still closed in the upper quarter of their intraday ranges.

Perhaps the most positive thing about yesterday's session was higher volume in both exchanges. Total volume in the NYSE increased 8%, while volume in the Nasdaq ticked 15% above the previous day's level. Despite one session of higher volume losses on April 14, yesterday was the second time in a week that both the S&P and Nasdaq registered a bullish "accumulation day." It was also the second straight day that stocks reversed higher into the close, a healthy sign in uptrending markets.

In yesterday's commentary, we pointed out the developing bullish setups in the energy sector. Though the Nasdaq was the star of the show yesterday, energy was one of the top-performing sectors. Oil Service HOLDR (OIH), which we bought on April 14, outperformed the broad market with a gain of 3.0%. It also cleared a major band of horizontal price resistance to close at its highest level of 2009. In the short-term, look for continued bullishness in this ETF, as well as potential breakouts in related ETFs such as IEO and XLE. The daily chart of OIH is shown below:

The Retail HOLDR (RTH) has been consolidating in a tight range, right at major resistance of its 200-day moving average. Yesterday, it closed just below the high of its recent consolidation. In the coming days, watch for a potential breakout above a major area of horizontal price resistance. This is shown on the daily chart below:

Although RTH may break out in the coming days, we're a bit leary of buying new ETF breakouts at this stage because they are essentially lagging the recent breakouts in the major indices. As such, there's a strong possibility they could attempt to break out, right as the S&P and Dow run into resistance of their February highs and pull back. This, of course, does not mean ETF breakouts can not be bought right now, but we suggest tight stops, just below the breakout levels, to protect against the possibility of failed breakouts that could occur with ETFs that are out of sync with the broad market. If, for example, OIH starts to fail the pivot, we'll probably tighten our stop to just lock in a small gain or scratch the trade, then continue to watch and assess for potential re-entry.

Rather than focusing on buying new breakouts at current levels, one strategy we like better is to wait for leading ETFs to pull back to key support levels, such as their 20-day exponential moving averages. When they do, we'll be planning to buy them, in anticipation of continuing their leadership when/if the market makes another leg up. Buying pullbacks in steadily uptrending ETFs is a solid approach, because the risk/reward of such entries is usually very positive.

With pullback entries, a bit of patience is required because nobody knows exactly when the pullbacks will come. However, just as weak market eventually bounce substantially off their lows, even the strongest markets eventually correct, . When that downside correction comes, it's important to have a "shopping list" of the strongest ETFs for potential buy entry. Behind the scenes, we've been developing a watchlist of ETFs with the most relative strength, many of which we've discussed in recent weeks. As these setups approach the area of potential buy entry, we'll be sure to give you a heads-up.

Open positions (coming into today):


TAN long (500 shares from March 31 entry) - bought 7.05, stop 7.47, target 9.75, unrealized points = + 1.07, unrealized P/L = + $530

OIH long (100 shares from April 14 entry) - bought 83.85, stop 77.80, target 102.40, unrealized points = + 3.73, unrealized P/L = + $373

UGA long (175 shares from March 4 entry) - bought 23.41, stop 24.23, target 31.30, unrealized points = + 1.62, unrealized P/L = + $284

UDN long (700 shares from March 25 entry) - bought 25.70, stop 24.84, target 27.45, unrealized points = (0.36), unrealized P/L = ($259)

SLV long (400 shares from March 5 entry) - bought 13.14, stop 11.71, target 16.35, unrealized points = (1.08), unrealized P/L = ($432)


Closed positions (since last report):


(none)


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


$39,760

Notes:


• We've raised the stop on UGA, to just below the low of the past three days' tight consolidation. Because of its very tight range in recent days, a move in either direction is likely to see strong momentum, so we raised our stop to lock in a small gain in case UGA fails to breakout to the upside.
  
  
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