After oscillating in a sideways range throughout most of the day, a positive reaction from the Fed policy minutes sparked a broad rally in the final ninety minutes of trading. This time, the S&P and Dow slightly outperformed the Nasdaq for a change. The Nasdaq Composite gained 0.6%, the S&P 500 0.8%, and the Dow Jones Industrial Average 0.9%. The small-cap Russell 2000 climbed 0.7% and the S&P Midcap 400 rallied 0.8%. Each of the major indices closed near their intraday highs.
Volume returned after the passing of the Columbus Day holiday. Total volume in the NYSE increased 39%, while volume in the Nasdaq came in 25% above the previous day's level. Nevertheless, the turnover increase was not enough to push volume levels above their 50-day averages. It has been several weeks since volume in either the Nasdaq or NYSE came in above average, indicating that institutions have not been aggressively supporting stock prices. Still, it doesn't require a lot of buying interest to push the major indices higher when they are already trading at new highs. Demand only needs to be marginally higher than overhead supply, which is basically non-existent when an index or stock is at a new 52-week high. Advancing volume in the NYSE exceeded declining volume by nearly 3 to 1. The Nasdaq ratio was positive by just over 3 to 2.
Recently, we have been analyzing the near-term pullback in the StreetTRACKS Gold Trust (GLD), as well as discussing potential entry points in anticipation of further price appreciation. Perhaps an even better opportunity is The Market Vectors Gold Miners (GDX), which is comprised of a basket of gold mining stocks. GLD, on the other hand, mirrors the price of the spot gold commodity. Until recently, GDX was lagging behind and showing relative weakness to GLD. However, this appears to have changed since the recent top was put in place. Yesterday, for example, GDX rallied 2.6%. GLD gained just 0.8%. Now, its three-week base of consolidation has GDX poised to break out to a new high. If it does, we will look to buy the breakout:
The daily chart of the Nasdaq has begun to move above the upper channel resistance of its intermediate-term ascending trend. This is illustrated below:
Though a strongly trending index can hug the upper channel of an uptrend for a long time, one of the most reliable indicators for an index being "overbought" is when it climbs above the upper channel. This, of course, does not mean that it will immediately snap back into the range of the primary ascending channel. However, it does mean that stops on long positions should be trailed tightly and new long positions should probably be avoided until a decent correction eventually comes. At the least, we would want to see a pullback to the 10-day MA, presently at the 2,743 level. Even better would be a retracement to the 20-day EMA (at 2,703).
A pullback from current levels would be good for the overall health of the market, as it would prevent stocks from getting too overheated. But it's also important that sharply higher volume does not coincide with a correction. The Nasdaq already had two days of higher volume selling last week, so more than two additional "distribution days" within the next several weeks would put the current uptrend in danger.
The positive for the market is that the rallies in the S&P and Dow have been more gradual. Neither is yet in danger of being significantly "overbought," at least in the short-term. Remember that quarterly earnings season is kicking in. As such, be prepared for the unpredictable moves that follow earnings surprises in market-leading companies.
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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 setup is:
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Below is the weekly commentary that accompanied the most recent ETF Trend Tracker, e-mailed to subscribers last weekend. 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:The Dow 30 (DIA) and other major Market Segment ETFs hit new highs for the week. Technically, there are no resistance levels above current prices, which enables indexes to move higher with minimal buying pressure. Price patterns will play a more important role, since patterns tend to repeat themselves over time. When trends begin to weaken, know that we will promptly adjust our stops to reduce our risk with the ascending trends. The Nasdaq 100 (QQQQ) is clearly showing the most relative strength for the bulls, making a strong finish to close the weekly session.
Some Industry sectors really took hold of the bulls this week. Real Estate (IYR) is making a comeback and setting new highs within its current trend channel. Broadband (BDH), Internet (HHH), Pharmaceuticals (PPH), Regional Banks (RKH), Software (SWH), Healthcare (XLV), and IPOs (FPX) each made very nice gains for the week. The Euro Currency (FXE) is off its highs and has hit the MTG Stop (S1), locking in a nice gain of 7% since February of this year. Presently, FXE has been on the "ascending trend" list the longest of any ETF.
Bonds (fixed-income ETFs) were quiet, but generally edged lower for the week.
The International sectors were partying hard. The weekly closing prices were so parabolic that it was difficult to locate support levels to limit risk. Adjust your market exposure based on the "Midtrend S1% Risk" column values, which shows the current risk to the MTG Stop (S1) if you enter at current levels. If the risk percentage is too high for comfort, then you may decide to reduce your entry share size accordingly. Inversely, if the risk if fairly low, you may consider adding more to your normal position size. China (FXI), for example, has nearly a 12% cushion, essentially locking in a gain of 27% since August. But for new positions on FXI: If you typically assume a 6% risk on a trade, you may want to only put on half the amount of the dollar value invested. Please review the update stops in the latest MTG ETF Trend Tracker report.
Alert 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.