Scoring their seventh gain within the past eight sessions, the major indices pushed further into new high of the year territory yesterday. As we’ve seen numerous times in recent weeks, stocks initially faced a bit of selling on the open, but the assiduous bulls again stepped up to the plate, causing the broad market to steadily rise throughout the entire day. The S&P 500 and Nasdaq Composite registered identical gains of 1.5%, as the Dow Jones Industrial Average climbed 1.1%. Small and mid-cap stocks continued to show the most relative strength. The Russell 2000 and S&P Midcap 400 indices rallied 2.1% and 2.0% respectively. Showing no signs of deliberation into the close, all the main stock market indexes finished at their intraday highs.

Higher volume accompanied the market’s gains for a second straight day, as rose for a second straight day, enabling the S&P 500 and Nasdaq Composite to register another bullish “accumulation day. Total volume in the NYSE ticked 6% higher, while volume in the Nasdaq increased 12% above the previous day’s level. In both exchanges, turnover was well above 50-day average levels. It was also the second most active day in nearly three months. Advancing volume in the NYSE exceeded declining volume by a solid margin of 5 to 1. The Nasdaq adv/dec volume ratio was positive by less than 3 to 1.

In the August 26 issue of The Wagner Daily, we looked at the long-term, “big picture” charts of the S&P 500 and Nasdaq Composite. The general observation was that, despite the broad market’s gains from the March 2009 lows to the present, it was technically nothing more than a countertrend, bear market rally from the October 2007 highs to the March 2009 lows. The conclusion was largely based on the fact that, at the time, the S&P 500 had only made a 38.2% Fibonacci retracement from that prolonged downtrend. Performing better, the Nasdaq had retraced nearly 50% of its loss, but was bumping into resistance of a long-term downtrend line. Since the major indices have been on fire for the past two weeks, let’s take an updated look at the long-term charts to see how the situation has changed. First is the weekly chart of the S&P 500, with standard Fibonacci retracement lines applied. Moving averages have been removed in order to more easily see the retracement levels:


Since our last check on the long-term charts, the S&P 500 has cleared resistance of its 38.2% Fibonacci retracement. If the bullishness continues, the next area the index is likely to encounter major resistance is the 50% retracement level, within a few percentage points of the 1,121 area. Although the short-term gains in the S&P have been rather impressive, the long-term downtrend technically remains intact. That will continue to be the case unless the S&P manages to rally beyond the “make it or break it” 61.8% Fibonacci retracement level from its year 2007 high to year 2009 low. Next, take a look at the weekly chart of the Nasdaq Composite:


When we first analyzed the weekly charts of the S&P and Nasdaq, last month, the Nasdaq was leading the S&P 500 in terms of recovery off the lows. That situation remains the same, as the index has already cleared the 50% retracement level. Next stop for the Nasdaq could be its 61.8% Fibonacci retracement, around the 2,251 area. Typically, the 61.8% retracement level is the “last line of defense” that prevents a dominant trend from reversing. Therefore, the long-term downtrend of the Nasdaq could reverse if the index manages to convincingly clear its 61.8% retracement level. Nevertheless, there’s still quite a bit of ground to make up before the index tests its 61.8% retracement. Favoring the bulls is the Nasdaq’s recent breakout above a multi-year downtrend line (the dashed, descending line). Whenever the broad market eventually pulls back, expect the Nasdaq to find support at prior resistance of that downtrend line. Presently, that would be around the 2,000 price level.

In yesterday’s commentary, we pointed out the bullish price consolidations that were forming in the price of the gold and silver ETFs (GLD and SLV respectively). In the trading session that followed, both ETFs gapped higher; GLD increased 1% and SLV rose 2%. The gains caused GLD to register a fresh, all-time closing high of $99.91. GLD has only traded higher than its current price once, an intraday spike on March 17, 2008. SLV closed at a new 52-week high, and is closing in on resistance of the $19 level that we illustrated yesterday. As our position in Gold Double Long (DGP) continued to move higher, our new entry into PowerShares Base Metals (DBB) is now showing an unrealized gain as well. Watch for DBB to potentially break out from a six-week base of consolidation. Tomorrow, we’ll show you an interesting observation on the even longer-term monthly chart of the S&P 500.

Open ETF positions:

Long – DGP, IBB, DBB
Short – (none)

NOTE: Regular subscribers to The Wagner Daily receive daily updates on the open positions above, as well as new ETF trade setups, including trigger, stop, and target prices. Intraday Trade Alerts are also sent via e-mail and/or mobile phone text message on as-needed basis.

Deron Wagner is the head trader of Morpheus Capital Hedge Fund and founder of Morpheus Trading Group (, which he launched in 2001. Wagner’s new book, Trading ETFs: Gaining An Edge With Technical Analysis, was published by Bloomberg Press in August, 2008. Wagner also appears on his best-selling video, Sector Trading Strategies (Marketplace Books, June 2002), and is 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. He is also a frequent guest speaker at various trading and financial conferences around the world.

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