Stocks lurched higher out of the starting gate and continued in a northerly direction for the first two hours yesterday morning, but the bears took control at mid-day, sending the broad market back down in the afternoon. Finishing near the flat line, the major indices settled with mixed results. The Nasdaq Composite surrendered an intraday gain of 2.4% to close just 0.3% higher. The S&P 500 and Dow Jones Industrial Average sported similar intraday gains in the morning session, but concluded the day with losses of 0.1% and 0.2% respectively. The small-cap Russell 2000 slipped 0.8%, as the S&P Midcap 400 edged 0.1% lower. All the main stock market indexes closed near their intraday lows.

Total volume in the NYSE jumped 16% above the previous day's level, while volume in the Nasdaq increased 15%. The S&P 500's loss on higher volume caused the index to register a bearish "distribution day," the third in recent weeks. Though the Nasdaq technically did not record a "distribution day," its volume pattern was indicative of "churning." When an index gives back an intraday gain of more than 2%, and also closes near its intraday low, it is indicative of selling into strength. When higher volume accompanies such action, it is more negative.

We devoted the entirety of yesterday's Wagner Daily to an explanation of the power of the 200-day moving average. If you read that commentary, yesterday afternoon's sell-off should not have been surprising, as the Nasdaq 100 Index had bumped into its 200-day moving average the previous day. Now, the more diversified Nasdaq Composite has joined the Nasdaq 100 in testing its 200-day MA as well. On the daily chart below, notice how the Nasdaq Composite reversed lower after reaching up to kiss major resistance of its 200-day moving average yesterday afternoon:

Several times over the past two weeks, we said that it would be much healthier for the main stock market indexes to pull back to their 50-day moving averages before breaking out above their recent highs to resume the two-month uptrend. We also said the major indices had a greater chance of failing their breakouts to new recent highs if they attempted to do so without pulling back first. So far, that's what may be happening, as illustrated on the daily chart of the S&P 500 below:

In addition to the S&P 500 faltering the breakout above its late January/early February highs, yesterday's bearish afternoon reversal caused all the major indices to form "shooting star" candlestick patterns on their daily charts. This pattern, circled on both charts above, is a warning sign that the prior uptrend may be about to end, leading to a reversal lower or sideways consolidation. However, realize the "shooting star" pattern is only an indication of the likely short-term outlook. As we've been saying, we would certainly welcome a substantial pullback in the markets, as it would create new low-risk buying opportunities in the strongest ETFs.

Open positions (coming into today):


QID long (250 shares from April 29 entry) - bought 37.84, stop 35.65, no target (will trail stop), unrealized points = (0.73), unrealized P/L = ($183)

FXY long (250 shares from April 24 entry) - bought 102.41, stop 99.48, target 112.20, unrealized points = (1.52), unrealized P/L = ($380)


Closed positions (since last report):


(none)


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


$34,500

Notes:


• QID missed our stop by exactly one cent before reversing higher in the afternoon. Stop has been adjusted just 15 cents lower, in order to provide a bit of "wiggle room" below support of yesterday's low.
  
  
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