The stock market continued its impressive winning streak yesterday, as the major indices scored another round of solid gains. Stocks gapped higher on the open, oscillated in a narrow range throughout most of the day, then made a final push higher in the last hour of trading. Registering its ninth straight win, the Nasdaq Composite climbed 1.7%. The Dow Jones Industrial Average advanced 1.2%, as the S&P 500 finished 1.1% higher. The small-cap Russell 2000 and S&P Midcap 400 indices logged identical gains of 1.5%. All the main stock market indexes again closed near their best levels of the day.
Total volume in the Nasdaq swelled 11%, enabling the tech-heavy index to log a bullish “accumulation day.” However, turnover remained below its 50-day average level. Volume in the NYSE was 13% lighter than the previous day’s level, and also slower than average. As the “summer doldrums” are now in full swing, it’s not surprising that the pace of trading has been lethargic. So far this month, both the NYSE and Nasdaq have had only two sessions in which volume was greater than average. Yesterday’s market internals confirmed the bullish session. In both exchanged, advancing volume exceeded declining volume by more than 3 to 1.
Yesterday, we sold our position in iPath India Index (INP), which we bought for a “swing trade” on July 8. The trade worked out well, yielding a gain of more than 13% on a hold time of less than two weeks. The initial entry was made because INP was a strong international ETF that had pulled back to “undercut” major support of its 50-day moving average, as well as a large breakaway “gap” from two months prior. After drifting around below its 50-day MA for a few more days, INP resumed its dominant uptrend, rallying all the way back to test the area of its prior highs yesterday. For educational purposes, we’ve annotated our entry and exit points on the daily chart below:
After taking profits on INP, we subsequently sent an Intraday Trade Alert to subscribers, informing them of our new buy entry into CurrencyShares Japanese Yen (FXY). On July 8, FXY broke out above a significant area of horizontal price resistance, on volume that was more than 600% greater than average. Since then, FXY has been drifting lower, but reversed after coming into support of its 20-day EMA and prior “swing high” yesterday afternoon. Taking advantage of the pullback to support, we bought FXY with the expectation of a positive reward/risk ratio for the trade. Our initial protective stop is just below the 50-day moving average (the teal line on the chart below):
Going into today, we’re still stalking various tech-related ETFs for pullback buy entries. We’re also monitoring CurrencyShares British Pound (FXB) for potential buy entry, on a breakout above major price consolidation (as discussed and illustrated in our July 17 commentary). Today, the S&P and Dow are likely to test pivotal resistance of their June 2009 highs. We’ll be watching these levels closely, to see whether or not both indexes manage to join the Nasdaq at a new nine-month high. Because the overall market has been acting well, there’s no reason to assume resistance of the June highs will spark a substantial correction; nevertheless, it’s a possibility of which one should be cognizant.
Open ETF positions:
Long – FXY
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 (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.
