Broad market indices shook off a 1-2% gap down on the open and reversed higher, stalling out just below Friday's highs ahead of lunch. The Nasdaq 100 once again showed leadership, as it was able to clear Friday's high for a few hours before falling back below the range. Stocks failed to follow through on the morning reversal in the afternoon, as indices slipped back to the lows of the day by 2pm. Markets attempted to rally off the lows at the 2:30 reversal period, but only managed to drift slightly higher in to the close. Monday's session was much of the same chop we have seen over the past two weeks. The Dow Jones Industrial Average lost 0.6%. The Nasdaq Composite and S&P 500 fell 0.9% and 1.0% respectively, with the S&P Midcap 400 right behind giving back 1.2%. The small-cap Russell 2000 was the day's biggest loser at 1.9%.

Total volume came in well off Friday's pace in both exchanges. Nasdaq volume dropped by 12%. NYSE volume finished below the 50-day moving average, 22% lower than Friday. The weak volume throughout the morning reversal rally more than likely was a clue not to expect too much in the afternoon session. Volume did not pick up on the selloff either, so broad market indices did manage to avoid another bearish "distribution day".

Over the weekend we did a little relative strength scanning, looking for some of the best performers of 2009. The weekly percentage change graph below shows a few of the strongest ETF's in the current rally:

The Nasdaq 100 leadership is quite obvious here, as it has handily outperformed the S&P 500 by at least 15% this year. Outside of the U.S., we see leadership from the iShares South Korea ETF (EWY) and the iShares Brazil ETF (EWZ). Not listed above (due to limited space) is the iShares China 25 Index (FXI), and the Market Vectors Russia ETF (RSX), which are also showing great relative strength.

When looking at the weekly chart above, we see that EWZ cleared the prior highs of January 2009 on a breakout in early April. The S&P 500 is still 8% below the January highs, so this is the quickest and easiest way to spot great relative strength in a market. With the 40-week MA providing resistance at 45.00, we could see a pullback to support of the breakout pivot and the rising 10-week MA, around 40.00. One could establish a small position around the 10-week MA, and look to add on a breakout above the 45.00 level for a longer-term hold.

The iShares South Korea ETF (EWY) setup is similar to EWZ, having already cleared the prior highs of January 2009 in early April. Look for a pullback entry at support of the prior breakout pivot and the rising 10-week MA, around 30.00.

RSX, FXI, EWZ, and EWY are a handful of alternative vehicles that should continue to outperform the S&P 500 as long as we remain in rally mode.

After basing out for a few months between the 19.00-22.00 level, the iShares Copper ETF (JJC) has established a strong uptrend over the past two months, and is currently in pullback mode. The first pullback to the 50-day MA (should it get there) is one the best low-risk entry points to climb aboard a fast moving market (see chart below):

The S&P 500 continues to struggle with the 870 level, as we saw very little buying interest near Friday's high. Monday's high in the Nasdaq 100 was less than 1% below the 200-day MA, which should provide significant resistance if/when hit. Per yesterday's commentary, we are still looking for a pullback to the 50-day MA in the major indices, which should provide us with plenty of high quality buy setups off support.

Open positions (coming into today):


FXP long (400 shares from April 20 entry) - bought 20.75, stop 19.28, target 27.90, unrealized points = + 0.75, unrealized P/L = + $296

FXY long (250 shares from April 24 entry) - bought 102.41, stop 99.48, target 112.20, unrealized points = + 0.38, unrealized P/L = + $92

SDS long (150 shares from April 22 entry) - bought 66.96, stop 63.62, target 73.30, unrealized points = (0.76), unrealized P/L = ($116)


Closed positions (since last report):


(none)


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


$44,215

Notes:


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