Initially following through on the previous afternoon’s weakness, stocks opened lower yesterday morning, but the bearishiness was short-lived. Bulls took advantage of the gap down, stepping in to reverse the broad market into an intraday uptrend. By day’s end, the major indices finished in plus column, but below their previous day’s highs. After erasing early losses of approximately 0.6%, both the S&P 500 and Dow Jones Industrial Average gained 0.3%. The Nasdaq Composite was higher by 0.2%. Small and mid-cap stocks showed a bit of relative weakness for a change. The Russell 2000 was unchanged and the S&P Midcap 400 slipped 0.1%. All the main stock market indexes closed around the upper 20% of their intraday ranges.
Unfortunately for the bulls, one key element lacking from yesterday’s bullish reversal was volume. Total volume in the NYSE was 9% lower than the previous day’s level, while volume in the Nasdaq eased 19%. Turnover in both exchanges also fell back below average levels. Considering the previous session was marked by institutional distribution (higher volume losses), it would have been much better if yesterday’s reversal back up was accompanied by even strong volume, but it wasn’t. Therefore, the overall price to volume relationship of the broad market over the past two days has been negative (one higher volume loss, followed by a lighter volume gain). Market internals were modestly positive. In both the NYSE and Nasdaq, advancing volume exceeded declining volume by a margin of less than 2 to 1.
In our April 5 commentary, we discussed the relative strength several Emerging Markets ETFs were starting to exhibit. One of those was iShares Xinhua China 25 Index (FXI), which was showing a solid unrealized gain since our March 26 buy entry. Fast forwarding five days later, FXI continues to act well. Over the past four days, it has been trading in a tight, sideways range, digesting its recent gains. Based on this pattern, short-term momentum traders may wish to buy the next breakout in FXI, above the $44 level, in anticipation of the ETF making another leg higher. The daily chart of FXI is shown below:
Although FXI is looking good, subscribers should note we raised our stop on the position today (details on the “open positions” section below). With a bit of distribution and more indecision creeping into the markets, we’re micromanaging the trade, just to ensure we still lock in a nice gain in case of further institutional selling. We have also raised the stop in iShares U.S. Broker-Dealer Index (IAI), which also continues to act well.
In the April 7 issue of The Wagner Daily, we said of the broad market, “Now that the major indices have broken out above the highs of their multi-week trading ranges, without pulling back first, this may be a good time to consider raising protective stops on any broad-based ETFs you’ve been holding. The breakout levels of two days ago (April 5) should now act as support on a pullback, so a new stop just below those levels may be ideal for some traders. In the ETF Portfolio Tracker, our ETF newsletter that focuses on longer-term holding times, we just raised used the same analysis to tighten the stop in S&P Midcap SPDR (MDY). As such, we’re now able to quickly lock in gains near the highs, in the event of a pullback, while allowing profits to ride as long as the bullishness continues. The stop placement in MDY is shown on the daily chart below.” Following is a re-print of that chart (last closing date of April 6):
Since then, the prior breakout level from the late-March consolidation has indeed acted as support, confirming our new trailing stop in MDY is in exactly the right place. Looking at an updated snapshot of MDY, through the April 8 close, notice how yesterday’s intraday low was right at support of the breakout level, thereby missing our stop shown on the chart above:
Going into today, we continue to monitor ProShares Ultra Semiconductors (USD) for potential buy entry. The setup was illustrated in yesterday’s commentary, but it did not yet breakout above the consolidation. The S&P Biotech SPDR (XBI) is another ETF on our radar right now. It’s been consolidating in a tight range, holding support of its 20-day EMA for the past four weeks. As such, it may be ready to resume its dominant uptrend. If any new positions are entered today, we’ll promptly send subscribers an Intraday Trade Alert with details.
| Open ETF positions:
Long – FXI, IAI, UUP |
 |
Deron Wagner is the Founder and Head Portfolio Manager of Morpheus Trading Group, a capital management and trader education firm launched in 2001. Wagner is the author of the best-selling book, Trading ETFs: Gaining An Edge With Technical Analysis (Bloomberg Press, August 2008), and also appears in the popular DVD video, Sector Trading Strategies (Marketplace Books, June 2002). He is also co-author of both The Long-Term Day Trader (Career Press, April 2000) and The After-Hours Trader (McGraw Hill, August 2000). Past television appearances include CNBC, ABC, and Yahoo! FinanceVision. Wagner is a frequent guest speaker at various trading and financial conferences around the world, and can be reached by sending e-mail to deron@morpheustrading.com.
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