Stocks bounced back to recover a portion of the previous day's losses yesterday, but the Nasdaq remained below both its 20 and 200-day moving averages. The main stock market indexes opened nearly flat, then drifted higher throughout the day. The Nasdaq Composite advanced 1.5%, the S&P 500 1.0%, and the Dow Jones Industrial Average 0.6%. The small-cap Russell 2000 and S&P Midcap 400 indices closed higher by 1.8% and 1.6% respectively. Selling in the final hour caused the major indices to finish near the upper third of their intraday ranges.

Trading eased across the board, preventing the S&P and Nasdaq from rebounding on higher volume. Total volume in the NYSE declined 14%, while volume in the Nasdaq was 8% lighter than the previous day's level. Turnover in both exchanges limped in below 50-day average levels. Nasdaq volume was the lightest since May 1. In the NYSE and Nasdaq, advancing volume exceeded declining volume by a margin of approximately 7 to 2.

Yesterday, many of the energy-related ETFs gapped down to support of their 20-day exponential moving averages (EMAs), then reversed to finish higher. We've been waiting for pullbacks to support of the prior breakouts in this sector, and that came yesterday. Of all the oil and gas ETFs, Oil Service HOLDR (OIH) has been showing the most relative strength. Take a look at its daily chart below:

OIH began pulling back after running into resistance of its 200-day MA last week. However, now that it's come into support of its 20-day EMA, expect OIH to attempt a resumption of the multi-month uptrend. The prior breakout (as annotated by the dashed horizontal line) should also act as support. If you didn't buy yesterday's opening gap down to the 20-day EMA, an alternate entry point is a rally above the hourly downtrend line. This is shown on the shorter-term hourly chart below:

Yesterday's broad-based bounce was likely attributed to both the Dow and S&P coming into support of their 20-day EMAs. As it often does in steadily trending markets, the 20-day EMA has perfectly acted as support on numerous occasions since the uptrend off the March 2009 lows began. This is illustrated on the daily charts of both the Dow Jones Industrial Average and S&P 500 below:

Although it's positive these indexes once again bounced off their 20-day EMAs, the Nasdaq remains below its 20-day EMA, which it fell below the previous day. Prior support of the 20-day EMA in the Nasdaq has now become resistance, at least in the short-term. Above that, the 200-day moving average is obviously much more substantial resistance. This is likely to put pressure on the broad market today, which could easily cause the S&P and Dow to break support of their 20-day EMAs as well. If the S&P and Dow close below their 20-day EMAs, be prepared for a high-momentum wave of selling in the short-term. As we've been saying, a pullback to the 50-day MAs of the major indices would be a realistic downside target, and would also be positive for the health of the broad market. But because of monthly options expiration, be prepared for a choppy session today, especially in the afternoon.

Open positions (coming into today):


SLV long (700 shares from May 4 entry) - bought 12.72, stop 12.22, target 15.12, unrealized points = + 1.13, unrealized P/L = + $791

UNG long (400 shares from May 6 entry) - bought 14.84, stop 14.22, target 19.80, unrealized points = + 1.84, unrealized P/L = + $736

FXY long (250 shares from April 24 entry) - bought 102.41, stop 100.80, target 112.20, unrealized points = + 1.53, unrealized P/L = + $383

QID long (250 shares from May 12 entry) - bought 37.80, stop 35.78, target (will send alert), unrealized points = + 1.13, unrealized P/L = + $283

TAN long (400 shares from May 13 entry) - bought 8.16, stop 6.53, target 12.88, unrealized points = + 0.47, unrealized P/L = + $188


Closed positions (since last report):


(none)


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


$55,537

Notes:


• No changes to the open positions today.
  
  
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