As anticipated, stocks took a "pause for the cause" yesterday, trading in a relatively narrow range before finishing with mixed results. The major indices spent most of the day in negative territory, but a modest rally in the final ninety minutes of trading erased most of the losses and enabled a few sectors to close positive. The S&P 500 and Dow Jones Industrial Average registered matching losses of 0.2%, but continued strength in the tech arena helped the Nasdaq Composite to gain 0.2%. The small-cap Russell 2000 slipped 0.4%, as the S&P Midcap 400 finished flat. The main stock market indexes closed near their best levels of the day.
Trading eased significantly yesterday. Total volume in the NYSE receded 26% below the previous day's level, while volume in the Nasdaq similarly declined by 27%. It was the lowest volume day of the year in the NYSE. Turnover in that exchange has also limped in below average levels every day since the first of this month. Even though the S&P 500 scored three "accumulation days" of higher volume gains last week, volume was lighter than average in every one of those sessions. The balance of power clearly remains with the bulls for now, but we've yet to see overly convincing participation by mutual funds, hedge funds, and other "big money" players. Sharp surges in total market volume is the undeniable footprint of institutional trading activity. Unfortunately, such action has been absent from the NYSE throughout this month's rally. Last Friday was the sole day of above average volume the Nasdaq has had this month.
In yesterday's commentary, we pointed out the convergence of resistance levels on the daily charts of both the S&P 500 and Nasdaq Composite. We also mentioned that additional resistance of the long-term weekly downtrend lines looms overhead as well. As such, let's take a look at those primary trendlines on the weekly charts. We'll begin with the weekly chart of the benchmark S&P 500. Horizontal price resistance of the February highs, shown in the daily charts yesterday, is also shown on the weekly chart below (the dotted red horizontal line). Note the usual moving averages have been removed so that the downtrend line can be more easily seen.
As you can see, the S&P has been in a primary downtrend since last October. The bearish reversal at the peak began after the index formed a double top at resistance of its all-time high that was set back in March of 2000. Throughout the first two weeks of October 2007, the S&P probed less than 2% above its March 2000 high, promptly ran out of gas, then began the downtrend that has been intact for the past six months. Based on the first anchor point of the primary downtrend line (the "lower high" set last December), current resistance of the six-month downtrend line is around the 1,417 area. Obviously, the downtrend line will continue to close in on the price of the S&P as the index trades sideways. Next, take a look at the weekly chart of the Nasdaq Composite:
The chart of the Nasdaq is similar to the S&P, with a few notable exceptions. Rather than beginning its downtrend in October of 2007, the Nasdaq's high was formed in the first week of last November. The peak of the Nasdaq is also much different; the S&P 500 was testing resistance of its historical high, but the Nasdaq Composite was still nearly 50% off its amazing high set in March of 2000. Presently, resistance of the Nasdaq's primary downtrend line is around the 2,460 level. Finally, let's assess the weekly chart of the Dow Jones Industrial Average:
When the Dow formed its peak last October, the index was trading a whopping 20% above its prior historical high from January of 2000. Clearly, the Dow has showed the most long-term relative strength of the major indices since the year 2000 to 2002 bear market formed a bottom in October of 2002. Nevertheless, the current long-term downtrend of the Dow is technically just as weak as that of the S&P 500 and Nasdaq Composite. Resistance of the Dow's six-month downtrend line is currently near the 13,000 level, not far above yesterday's closing price. The Dow is the only major stock market index that has already rallied above resistance of its prior highs from February of this year.
In the April 2, 2008 issue of The Wagner Daily, written after the broad market broke out the previous day, we said the following, ". . .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 downtrend."
Since our April 2 commentary above, stocks have indeed been rallying and we have realized decent profits on the long side of the market. The reason we suggested strength for "at least the next three to six weeks" was due to resistance of the downtrend lines from the October 2007 highs. It's already been three weeks, and it probably won't be more than another one to two weeks until the major indices bump into those downtrend lines. That's why we suggest strength for at least three to six weeks. A brief probe above resistance of their downtrend lines is to be expected, as specialists and market makers will want to grab the but stop orders just above the downtrend lines. But the big question is whether the downtrend lines will thereafter "do their thing" to trigger a resumption of the downtrends that have been in place for the past six months. Until the market proves otherwise, we must assume the already established downtrend will remain intact. Be on the lookout for the major indices to soon test key resistance of those downtrend lines.
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.
There is no new Stalk of the Week this week. There isn't much to do on the long side, as most of the better looking chart patterns report earnings within the next few days. However, we are looking to buy stocks that gap up on big volume from earnings that beat analyst estimates by 100% or more. Stocks that report blow out earnings have the potential to run 50-100% higher over the next six months. As always, we will promptly send an intraday alert to subscribers of The MTG Stalk Sheet if any new trades are made.
Research in Motion (RIMM), last week's Stalk of the Week, is working out great! Since our April 17 entry, the trade is already showing an unrealized gain of 7 points. We'll continue to trail a stop higher to maximize profit and protect our gains along the way.
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 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 major indices rallied significantly last week, taking the Market Segment ETFs into the "ascending trend" list. The Dow 30 (DIA), for example, triggered to the ascending trend Friday, after it gapped above resistance of its prior swing high. Only the Dow Dividend segment remains in the descending trend. Due to the recent gains, and based on the trend reversals, we now have a bullish intermediate-term bias in the broad markets. Trades during this period will be largely on the buy side.
Technology (XLK) was the only industry that triggered to the "ascending trend" list last week. Other ETFs performing well are Oil Services (OIH), which has already gained over 12% since early April, and Energy (XLE), which has similarly gained over 15% since moving to the "ascending trend" list. Rallying well are Internets (HHH), Aerospace (PPA), Basic Materials (XLB), and Software (SWH). Other Industries and ETFs in the Specialty sector that triggered into the ascending trend last week extended their gains. The IPO index (FPX) gapped up nicely and cleared difficult resistance levels. US Oil (USO) and Natural Gas (UNG) headed to new highs.
The Bond market weakened last week, sending the short term bonds (SHY) into the descending trend. The other fixed income bond ETFs in the ascending trend also broke down and are testing Reversal Stop (S2) levels.
No new additions to the ascending trend in the international sector, but several ETFs are setting up well. Taiwan (EWT) was one of the earliest entries to the "ascending trend" list, and is back near its highs with a 14% gain to date. Watch for the S2 price levels in the descending trend to prepare long or buy entries. Listed at the bottom of this page are ETFs that are very close to the S2, where the trend reversal is imminent. There are several updated stops in this week's ETF Trend Tracker report, which you can quickly identify by looking for cells shaded in pink color. Please review the stops, adjust your price levels, and study our annotated charts by clicking on any ticker symbol.
Our free one on one consultation ended last week. Several subscribers took advantage of the service and we are sure a great deal of knowledge was transferred. It was a pleasure receiving and answering questions in person and getting immediate feedback. We truly want our subscribers to become successful traders and investors, and using the ETF Trend Tracker is the dynamic way to keep interest in the market for the long run. If you would like to schedule a consultation session, MTG is offering a special discounted rate of $150 per half hour for a limited time. Just call or e-mail us to set up an appointment. Learn how to approach trades in this difficult market and gain insights into using the ETF Trend Tracker report for long-term growth. Learn mid-trend entry strategies, controlling risk, portfolio management, trade execution, and much more.
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.
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Morpheus Trading Group's Founder and Portfolio Manager, Deron Wagner, is proud to present the third of his live video interviews that was recorded at the New York Traders Expo in February 2008. Click here to view the latest video interview (less than 3 minutes long) and learn why Wagner thinks you must first consider the volatility of an ETF in order to choose a position size that matches your risk profile. Click here to view Wagner's live video interview regarding inversely correlated ETFs. Click here to view Wagner's interview on non-correlated ETFs. If you missed Wagner's February presentation at the New York Traders Expo, don't fret. We're pleased to announce that Wagner has been invited to speak at the upcoming Los Angeles Traders Expo from June 18 - 21, 2008. Click here for details of this and other upcoming events. We look forward to meeting you at our next event in California! |