Stocks got off to a rough start yesterday morning, but recovered to finish the day solidly higher. Although the major indices opened significantly lower and dropped a bit more in the first thirty minutes, the bulls subsequently stepped up to the plate and triggered a steady intraday uptrend in the broad market. The S&P 500, Nasdaq Composite, small-cap Russell 2000, and S&P Midcap 400 each scored an identical gain of 0.8%. The black sheep was the Dow Jones Industrial Average, which climbed 0.4%. All the major indices closed near their best levels of the day.
Total volume in the NYSE rose 11%, while volume in the Nasdaq ticked 4% above the previous day's level. The gains on higher volume technically enabled both the S&P 500 and Nasdaq Composite to register a bullish "accumulation day." However, it should be noted that much of the volume increase occurred as stocks were selling off in the morning. Market internals were firm. Advancing volume in the NYSE exceeded declining volume by a margin of 2 to 1. The Nasdaq ratio was positive by 3 to 1.
When analyzing intraday, daily, and weekly charts, the moving averages we most commonly discuss are the 20-day and 50-day MAs. The 20-day MA shows the price trend in the short-term and the 50-day MA shows the overall bias in the intermediate-term. More important than both of these moving averages, but less frequently discussed, is the 200-day MA, which shows the long-term trend of the market.
In technical analysis, the longer the time interval of a chart, the more bearing and weight the pattern will have on the direction of the market than the shorter time frame. The same is true of moving averages. A 50-day MA is more difficult to break through than a 20-day MA, while a 200-day MA holds more weight than a 50-day MA. Many institutions utilize program trading to automatically begin buying when stocks or ETFs retrace to support of their 50-day MAs, or sell positions when they rally into resistance of their 50-day MAs. This is even more the case with the 200-day MA, as it is considered to be a gauge of the overall market's "big picture" health.
It's a rather amazing concept, but the 200-day MA simply acts like a brick wall whenever a stock, ETF, or index runs into it. It doesn't matter whether it's a test of support from above or rally into resistance from below. Either way, a position will rarely move through the 200-day MA on the initial test. Unless the dominant trend is really strong, it will generally require multiple tests of the 200-day MA before an equity or stock market index eventually busts through. This is not only with the 200-day moving averages on the daily charts, but on the intraday and long-term weekly charts as well. A great example of the power of the 200-day moving average can be seen on the daily chart of the iShares Russell 2000 (IWM) below, taken from mid-2007. The shorter-term 20 and 50-day moving averages have been removed so you can more easily see the 200-day MA:
Isn't it fascinating how the 200-day MA perfectly acted like a brick wall on every rally attempt in IWM until it finally popped above it in mid-September? After it broke out above the 200-day MA, the prior resistance of the 200-day MA became the new support level. The most basic tenet of technical analysis is that a prior area of resistance will become the new support after the resistance is broken. The chart above is a great example of this. At the letter "A," you see that the 200-day MA became the new support.
The reason for this discussion on the 200-day MA is that both the S&P 500 and Nasdaq Composite will soon test resistance of their 200-day MAs for the first time this year. As history has proven, the 200-day MAs could be the turning point that causes the main stock market indexes to resume their primary downtrends that have been in place since last October. The S&P 500 closed just 1% below its 200-day yesterday, while the Nasdaq Composite is only 1.5% away from its 200-day MA. The 200-day MAs are shown on the daily charts of the S&P and Nasdaq below:
Leading the "big three" stock market indexes, the Dow Jones Industrial Average has already run into resistance of its 200-day MA. In each of the past three sessions, the Dow tried and failed to move above its 200-day MA. If the Dow is unable to reclaim its 200-day MA in the near future, the bullish momentum we've been seeing could quickly turn into major selling pressure, at least in the short-term. Take a look:
We remain only lightly positioned in the market right now. We're still monitoring the iShares Nasdaq Biotech (IBB) for a potential breakout above its recent range and 200-day MA, but that has not happened yet. A pullback to support in the Market Vectors Steel (SLX) would also present a relatively low-risk buy entry. As for the short side, there's no reason to consider any entries unless the main stock market indexes fall below yesterday's intraday lows. Such a sell-off would cause a breakdown below both the hourly uptrend lines and 10-day MAs, thereby triggering ideal short entries with positive reward/risk ratios.
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.
Live ETF Trading Seminar with Deron Wagner June 22, 2008 - Los Angeles, California  Shift your ETF trading into high gear in both up and down markets!
For all active traders and investors 
DESCRIPTION
YOU WILL LEARN HOW TO:
Wagner will be presenting an abbreviated version of this seminar (free) at the LA Traders Expo on June 21, but this is your chance to dive in deeper, put all the details together, and pick his brain! If you're already attending the LA Traders Expo from June 18 - 21, Wagner's dynamic ETF workshop is a great way to wrap up your trip. Most importantly, we're quite confident the investment in yourself will pay for itself many times over, within a very short time. Nevertheless, you need to act fast because seating is limited and advance registration is required. Attendance available on a first-come, first-served basis. |
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 Stalk of the Week is:
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 broad market ended last week on an upbeat note. The Nasdaq 100 (QQQQ) is now up more than 11% since our triggering to our "ascending trend" list in mid-March. The tech-heavy index performed well and continues to show the most relative strength of the market segment ETFs. The Dow 30 (DIA) and S&P 500 (SPY) both broke free from a week of consolidation and have cleared key resistance levels. The prior base of consolidation should now act as support, but the major indices may have trouble breaking out above their weekly downtrend lines (as recently discussed in The Wagner Daily).
More industry sectors triggered onto the "ascending trend" list last week. These ETFs are listed in the updated ETF Trend Tracker report, and are highlighted as pink rows at the top of the industry sector section. As some industries rallied, institutional money rotated out of others, causing a few ETFs to land on the "descending trend" list. Among them is Biotech (BBH), which has been moving in the opposite direction of most industries over the past month. Precious metals (GLD, SLV) moved lower among their descending trends, while the US dollar gained ground on the Euro Currency (FXE). Telecom (IYZ) continues to do well, but will be testing to see if it can break above February resistance levels.
The bond markets were weaker, closing the week near their lows. The long-term fixed-income bond (TLT) is about to reverse its trend to the downside.
The International markets also rallied modestly. The latest entry to the "ascending trend" list is Emerging Markets (EEM), which triggered May 1, 2008. All the international ETFs are now on the "ascending trend" list. Taiwan (EWT) has gained 12% since moving to the "ascending trend" list in late February. Performing just as well are China (FXI) and Brazil (EWZ). India (INP) is making a surprisingly steady and orderly move higher. INP is now showing a 10% gain since its late March entry to the "ascending trend" list. We urge you to review the annotated charts carefully, and print a copy of the ETF Trend Tracker report for reference during the course of the week.
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.
