Scoring their third straight day of gains, the major indices moved moderately higher yesterday, but turnover continued to ease. The Nasdaq Composite rose 0.7%, the Dow Jones Industrial Average 0.5%, and the S&P 500 0.4%. The small-cap Russell 2000 and S&P Midcap 400 indices registered identical gains of 0.8%. Like the previous day, most of the day’s gains were the result of opening strength. Thereafter, narrow, range-bound trading was the prevalent theme. The Nasdaq closed near its intraday high, the S&P near the middle of the day’s range.
Total volume in both the NYSE and Nasdaq was 8% lighter than the previous day’s levels. On Monday, stocks made a nice advance, but also on decreasing volume. With only one and a half days of trading remaining before the Christmas holiday, there’s a good chance trading will be even lighter in today’s session, and practically non-existent tomorrow. When volume levels are coming in much lighter than average, it’s important to not place much significance on accompanying price action. A string of gains on decreasing volume, for example, can easily be erased by just one day of higher volume selling.
Since launching into nosebleed territory at the beginning of this month, SPDR Gold Trust (GLD) has corrected sharply. On December 17, GLD came into contact with its 50-day moving average, but downside momentum caused the ETF to slice right through it. Nevertheless, the long-term weekly chart shows GLD coming into major support of an uptrend line that began with the lows of November 2008. This is shown below:
Although the weekly chart shows GLD approaching support of its 13-month uptrend line, the pattern of the weekly bars has not yet given any indication of even a short-term bottom. Therefore, any entry near the current price could be subject to higher volatility, as GLD attempts to form a base. With the U.S. dollar now substantially off its lows, there is slightly less concern of a massive short squeeze in the dollar pressuring the prices of commodities. As we approach the new year, consider putting GLD on your watchlist of potential entries.
Over the last several days, we’ve illustrated a few ETF trade setups that looked good for a quick “pop.” Because we’re generally not inclined to enter new positions ahead of a three and a half day weekend, especially with volume so light, we did not “officially” enter any of these trades. We probably won’t do so today or tomorrow either. However, short-term daytraders might still benefit from any breakouts on an intraday basis. Conversely, we will be looking to buy the first pullback after the breakout, after the holiday lethargy has passed. Below are the daily charts of two ETFs we’ve been monitoring that are poised for breakouts above resistance within the next one to two days:
Holiday publication schedule: On Thursday, December 24, the stock market will close early, at 1:00 pm EST. That day, only an abbreviated version of The Wagner Daily will be published, primarily recapping any updates to open positions for subscribers. On Friday, December 25, the stock market will be closed for Christmas Day holiday, and The Wagner Daily will not be published that day. Regular publication will resume on Monday, December 28. Merry Christmas, Happy Hanukkah, Happy Ramadan, and Happy Kwanzaa.
Open ETF positions:
Long – SMH
Short (including inversely correlated “short ETFs”) – EEV, FAZ
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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