Broad Market Analysis - S&P 500 approaching its record high
After spending most of the day in a narrow, sideways range, the major indices briefly rallied to new highs in the afternoon, but selling pressure in the final thirty minutes caused stocks to finish with mixed results. The Nasdaq Composite gained 0.3% and the Dow Jones Industrial Average edged 0.1% higher, but the S&P 500 drifted 0.1% lower. Both the small-cap Russell 2000 and S&P Midcap 400 indices advanced 0.2%. Strength in Internets and Semiconductors helped the more concentrated Nasdaq 100 Index to outperform for the second straight day by gaining 0.4%. The S&P 500, Nasdaq, and Dow all closed near the middle of their intraday ranges.
Turnover was also mixed. Total volume in the NYSE was 1% higher than the previous day's level, while volume in the Nasdaq declined by 9%. Although volume levels were little changed from the previous day, volume in the Nasdaq has exceeded its 50-day average level in six of the past seven days. Institutional interest in the NYSE has been more subdued. Over the past five weeks, the NYSE has only had two sessions in which volume rose above average levels. As for market internals, declining volume in the NYSE fractionally exceeded advancing volume. The Nasdaq ratio was positive by just 1.2 to 1. Yesterday's mixed volume readings were not very enlightening.
The financial media has been gaga over the Dow vaulting to a new high and over the 13,000 level, but there has been little discussion of how stealthily the S&P 500 has rallied to within striking distance of its all-time high as well. The index closed yesterday only 33 points (2.2%) below its historical closing high of 1,527, registered on March 24, 2000. This is illustrated on the monthly chart of the S&P below:
Given the close proximity of the S&P to its record high, it's plausible to think that traders will attempt to make a run at that high before seeing a significant correction. There are undoubtedly a lot of buy stops in that area and the temptation for institutions to run those stops is too great. Though the S&P is only two percent off its historical closing high, the Nasdaq Composite is another story.
Thanks to the insanity of the late dot com boom, the Nasdaq's all-time high is still in nose-bleed territory! Its record closing high of 5,048 was set on March 10, 2000. Based on yesterday's closing price of 2,554, the index remains a prodigious 98% below its historical high. Many of us will be lucky to live long enough to see the Nasdaq climb back over the 5,000 level! As you can see by the Fibonacci retracement lines on the chart below, the Nasdaq has recovered only about one-third of the loss from its May 2000 high down to its October 2002 low:
Yesterday's action did not change the current technical state of the markets. It was just a consolidation day typical of those that follow strong sessions in uptrending markets. As the bulls continue to snort, either ride the wave of momentum, keeping protective stops in place, or sit patiently on the sidelines in anticipation of at least a modest correction that will enable lower risk entry points in new long positions. If buying new positions at current levels, be sure they are within industry sectors that are showing relative strength to the broad market. In the event of a sudden correction, sectors with relative strength should retrace less than those that are merely keeping pace with the major indices. If cash is your preference, it is unlikely you will miss many more upside opportunities before seeing either a correction by time, such as a multi-week consolidation, or a pullback down to support of the 20-day moving averages.
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In this column, MTG presents you with a FREE, actual trade setup that we are stalking for entry at some point during the week. Note that, unlike the daily guidance that regular Stalk Sheet subscribers receive, this free Stalk of the Week does not take into account overall broad market conditions that can easily affect the trade over the next several days. This week's play is:
Last week's Stalk of the Week, CELG long, triggered and was sold for a quick profit into momentum of the breakout.
Click to receive your free 1-month trial to The MTG Stalk Sheet so that you can receive an average of one to three trade ideas such as this one on a daily basis (limit one free trial per household). Subscribers are always provided with detailed entry, stop, and target prices for each trade, and intraday e-mail alerts are sent as needed.
Below is the weekly commentary that accompanied this week's updated ETF Trend Tracker that was e-mailed to subscribers at the beginning of the week. The Morpheus ETF Trend Tracker, a perfect supplement to the ETF Roundup guide, is a comprehensive table of Exchange Traded Funds (ETFs) designed for informed investors and longer-term traders who prefer to hold their ETF positions for a few weeks to several months at a time. Based exclusively on a weekly analysis of trendlines on the daily and weekly charts, the ETF Trend Tracker provides subscribers with a thorough snapshot of the primary trend direction of ETFs in every category from broad-based to industry sector to international. This information is e-mailed to subscribers weekly, in a user-friendly format that groups ETFs based on the direction of their primary trends.
Commentary:Despite several "distribution days" in the Nasdaq last week, the stock market continues to trend steadily higher. All the Market Segment ETFS are now on the "ascending trend" list. The Segments with the most relative strength are mid and large-caps. Noticeably weaker are the Nasdaq 100 (QQQQ) and small caps (IWM).
A handful of sector ETFs landed in the "ascending trend" list as well. Please review the latest ETF Trend Tracker report for updated list and stops. The defensive ETFs such as Utilities (XLU), Healthcare (XLV) and Pharmaceuticals (PPH) are performing well, continuing their momentum from the previous week. The Internets (HHH) dipped mid-week, and may have contributed to the lagging performance in the QQQQ and IWM. Crude oil (USO) trended lower and is back in the consolidation area near the $50.00 level. The Euro Currency calmed a bit and trended higher, prompting us to lift the MTG Stop (S1) higher to secure more gains.
Bond ETFs trended higher, but dipped into the end of the week. This could be a sign of bullish market rotation, and its conformity may bring out more participation in the market rally.
It was less exciting in the International sector. The ETFs already in the ascending list extended their gains. Hong Kong (EWH) reversed and is now on the "ascending trend" list. Taiwan (EWT) is the only ETF on the "descending trend" list. Europe (FEZ) and Brazil (EWZ) moved well and are taking the lead in the bull market. You will notice that these two ETFs, along with Germany, U.K., and Australia, landed in the ascending trend in March 2007, after a 3-month gap from December 2006. Japan (EWJ) was there last. These ETFs were the leaders of the current bull market, as evidcence by the substantial return during the previous month.
The ETF Trend Tracker report is not designed to tell you what has already happened. Rather, it is formulated to give you information about what to invest in next. Specifically, we report on detected changes in trend as soon as they happen. It is like getting in on the "bottom floor," but with also having a defined risk exposure. Call it "value investing" or whatever term you choose. We aim to reduce the uncertainty normally associated with investing because the reversal triggers are predefined, so capital risk can be pre-determined. Although the ETF Trend Tracker does not predict the future, it provides you with concise information on which areas hold the best potential and risk/reward ratios.
Alerts of imminent reversal to the upside:Click to receive your free 1-month trial to the ETF Trend Tracker (limit one free trial per household), which will be e-mailed to you every week, along with intra-week updates on an as-needed basis.