After opening slightly higher yesterday morning, stocks sold off into the first hour of trading, but persistent bulls again bought the dip, enabling the major indices to begrudgingly move higher later in the afternoon. Blue chips showed relative strength for a change, as the Dow Jones Industrial Average climbed 0.6%. The Nasdaq Composite gained 0.5% and the S&P 500 advanced 0.3%. The small-cap Russell 2000 and S&P Midcap 400 indices both finished 0.8% higher. With thirty minutes until the closing bell, the broad market briefly popped to new intraday highs, but traders sold into that burst of strength, causing the main stock market indexes to only finish near the upper quarter of their intraday ranges.
Turnover swelled across the board. Total volume in the NYSE surged 23% above the previous day’s level, while volume in the Nasdaq ticked 11% higher. The gains on higher volume were indicative of increased participation amongst mutual funds, hedge funds, and other institutions. However, market internals were not overly impressive. In the NYSE, advancing volume exceeded declining volume by a margin of less than 3 to 2. The Nasdaq adv/dec volume ratio was positive by just under 2 to 1.
Recently, we looked at the bullish consolidation in Market Vectors Agribusiness (MOO), an ETF comprised of individual stocks pertaining in some way to the agriculture industry. Over the past week, its trading range has tightened up, and it’s now in the process of breaking out above the high of its recent consolidation. Showing relative strength to the broad market with a 1.5% gain yesterday, the cutely named MOO closed yesterday just a few pennies above the pivotal breakout level. A rally above yesterday’s high would now present a breakout buy entry. The setup is shown on the daily chart below:
Yesterday, the spot gold commodity futures finally finished the regular trading session firmly over the closely watched $1,000 level. This correspondingly caused SPDR Gold Trust (GLD) to move to the top of its recent trading range, and positions the ETF for a gap to a new all-time high. We expect the tight range highlighted on the weekly chart below to soon lead to another leg up in the price of GLD, as well as in the leveraged Gold Double Long (DGP):
Although it was lagging the price of GLD for many months, iShares Silver Trust (SLV) has recently been playing “catch up.” Yesterday, GLD closed just below its intraday high of September 11, but SLV showed relative strength by already closing above the high of its recent range. Unlike GLD, SLV is still well below its all-time high, but there is also little in the way of technical resistance to hold SLV down in the near-term. As shown on the weekly chart below, SLV does not have much overhead supply to contend with until it reaches the $19 area:
Over the past few days, a handful of subscribers have e-mailed us to say they believe there’s been an excessive amount of market “manipulation” going on, which has been causing the market to continue moving higher without pause. We tend to discount that notion and believe there’s no more “manipulation” occurring now than at any other time. However, we will say there’s been an uncanny amount of “buying the dips” over the past two weeks, which has prevented even early morning weakness from materializing by the closing bell. It has also been causing practically all stops to get run on the short side, even in stocks and ETFs that have been exhibiting major relative weakness and/or bearish chart patterns. As such, we’ve not had success with our short positions in recent weeks, regardless of the sound technical reasons we had for entering them in the first place. Whether the inordinate amount of buying on dips makes sense or not, who are we to fight it? While the reward-risk ratio may not be overly conducive to excessive new long positions at this time, it’s wrong to be short right now, at least until the market proves otherwise.
Open ETF positions:
Long – DGP, IBB, DBB
Short – FXI
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 (morpheustrading.com), 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.
For a free trial to the full version of The Wagner Daily above, which includes detailed ETF trade setups and daily position updates, or to learn about our other newsletters, visit morpheustrading.com or send an e-mail to deron@morpheustrading.com.
