Table of Contents


• Broad Market Analysis - International ETFs back in play
• MTG Stalk of the Week - RRC long
• ETF Trend Tracker weekly commentary
• Live video interview with Deron Wagner - Non-correlated ETFs
• New! Intraday Trade Alerts sent directly to your mobile phone!

If the stock market's feeble rally on the last day of the first quarter was not very convincing, the bullish action on the first day of the second quarter was about as impressive as it gets! The major indices leapt out of the starting gate, then cruised steadily higher throughout the rest of the session. The Dow Jones Industrial Average rallied 3.2%, the S&P 500 3.6%, and the Nasdaq Composite 3.7%. The small-cap Russell 2000 and S&P Midcap 400 scored identical gains of 3.3%. For the first time in weeks, all the main stock market indexes finished at their intraday highs.

Stocks scored rather impressive gains yesterday, and they did so on sharply higher volume as well. Total volume in the NYSE jumped 17%, while volume in the Nasdaq surged 26% above the previous day's level. The strong gains on significantly higher volume enabled both the S&P and Nasdaq to register a bullish "accumulation day" that was indicative of institutional buying. Turnover in the NYSE moved back above its 50-day average level for the first time since March 20. However, trading in the Nasdaq remained below average for the seventh straight day. As one might have expected, market internals were extremely positive. In both the NYSE and Nasdaq, advancing volume steamrolled declining volume by a margin of 10 to 1.

Nor surprisingly, the Steel and Basic Materials ETFs we have been analyzing over the past few days broke out above their five-week downtrend lines yesterday. But after yesterday's session, a mix of other sectors are beginning to show bullish patterns as well. Finding a bullish setup is no longer like searching for a contact lens dropped on a glass floor. Upon scanning hundreds of ETF chart patterns last night, the one group that caught our attention was the international ETFs, many of which are setting up for potential buy entries. One such example is the iShares Xinhua China 25 (FXI). Yesterday, it ripped through resistance of both its five-month downtrend line and 50-day MA. This is shown on the daily chart of FXI below:

Not only did FXI break out yesterday, but notice the subtle relative strength it has been showing for the past week. While the U.S. stock market indexes were drifting lower through the last week of March, FXI was modestly trending higher. This means it should pull back less than the domestic market when stocks take a breather, and should advance a greater percentage than the domestic indexes on the up days. We're already long the iPath India Index (INP) and iShares Taiwan Index (EWT), but we're now stalking FXI for a potential entry point as well.

Another international ETF looking good right now is the iShares Mexico (EWW). Already showing major relative strength to the domestic markets since the U.S. markets entered a primary downtrend last October, EWW rallied above two key levels of horizontal price resistance yesterday. EWW is now just 4.5% below its all-time high. Comparatively, the S&P 500 is still 12.5% off its high. EWW should therefore break out to a new record high if the domestic broad market maintains its strength for a weeks more:

If you wish to check out the chart patterns of the other international ETFs, a comprehensive list of them can be found on the free Morpheus ETF Roundup. Our sister publication, the weekly ETF Trend Tracker, also keeps you abreast on international ETFs with the most relative strength.

In addition to the international arena, a few domestic industry sectors broke out as well. The iShares Transportation (IYT), which we bought on March 25, raced 4.2% higher yesterday. It also closed at its highest level since October of 2007. The breakout is shown below:

Yesterday was the third time within the past month the major indices have gained more than 3% in a single day. The first two times were quickly met by selling pressure, but we think this time may be different for several reasons. First, the main stock market indexes each broke out above key intermediate-term resistance levels on their daily charts. Second, the rally was broad-based, not just led by a spike in the beaten-down financial sector. Third, quite a few individual stocks broke out or are about to break out of bullish consolidation patterns on the daily charts. Prior rallies in March were bounces off the lows in which there were very few tradeable patterns.

The breakouts above key intermediate-term resistance levels mentioned above were very similar among the S&P, Nasdaq, and Dow. Specifically, all three indexes moved above their prior highs from March 24/25. This enabled the second "higher high" to be formed since the uptrend began with the March 17 lows. More importantly, this also confirmed the breakout above their primary downtrend lines that have been in place for the past four months. Finally, all the broad-based indexes also zoomed back above their 50-day moving averages. The breakout above these key resistance levels is illustrated on the daily chart of the S&P 500 below. The chart patterns in the other major indices is very similar:

Over the past few weeks, we've been suggesting the possibility that the broad market's rally off the mid-March lows could become the start of an intermediate-term uptrend, not just a near-term bounce off the lows. Based on the reasons above, we now believe a broad-based intermediate-term uptrend will indeed materialize. Although we expect continued strength for at least the next three to six weeks, don't forget we're still in a primary bear market. Take advantage of the strength while it lasts, but just remember the new intermediate-term uptrend is still within the context of a long-term, seven-month downtrend.

If you wish to learn about Morpheus Trading Group's ETF trade entries on the same day they occur, sign up for a free trial to The Wagner Daily or other MTG services by clicking here (limit one per household). Also, remember that all previously published issues of both The Wagner Daily and The Wagner Weekly are available in the MTG archives. If you are new to our services or wish to broaden your knowledge of ETF trading or our general trading style, we recommend you browse the archives because it is educational and free! Click here to visit the Wagner Daily archives or here to visit the Wagner Weekly archives.

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: