Stocks opened slightly lower yesterday, grinded back to the flat line by mid-day, rallied into moderately positive territory in the afternoon, then drifted off their highs into the close. By day’s end, the major indices had settled flat to modestly higher. The Nasdaq Composite rose 0.3%, the S&P 500 advanced 0.2%, and the Dow Jones Industrial Average was unchanged. The small-cap Russell 2000 gained 0.6% and the S&P Midcap 400 Index finished 0.5% higher. The main stock market indexes settled near the upper quarter of their intraday highs. With the exception of the Dow, all the major indices registered another round of new 52-week highs.
Total volume in both the NYSE and Nasdaq was approximately 4% greater than the previous day’s levels, but remained below 50-day average levels in both exchanges. Since the Dow was flat, but NYSE volume was higher, yesterday’s volume pattern in the NYSE may have been indicative of “churning,” a stealth attempt at institutional selling into strength. The Nasdaq technically had a bullish “accumulation day,” though neither the small percentage price gain or volume increase was overly convincing of buying amongst mutual funds, hedge funds, and other institutions.
As the U.S. Dollar Bull Index (UUP) continues to trade near its recent highs, the CurrencyShares Japanese Yen (FXY) has broken down below key support of a long-term uptrend line. This is shown on the weekly chart below:
When FXY fell below support of its 18-month uptrend line two weeks ago and failed to immediately recover, that prior support became the new resistance level. As such, a bounce that approaches resistance of the prior uptrend line could present an ideal entry point for a new short position. In the coming days, we’ll be monitoring FXY for a potential rally to the $108 to $108.50 area.
As anticipated, the financial ETFs have again grabbed the reigns of leadership in the market’s latest attempt to make another leg higher. The financial sector showed the most relative strength during the March rally, and the industry appears to be picking up where it left off. In particular, regional banking seems to be logging the biggest gains. Yesterday, the Regional Bank HOLDR (RKH) surged 2.0%, to another new 52-week high. Next, we are looking for a breakout in the securities broker-dealer sub-sector. After perfectly bouncing off support of its 20-day exponential moving average, our long position in iShares U.S. Broker-Dealers Index (IAI) is starting to look pretty good. A rally above yesterday’s high should send IAI into another uptrend, building on the gains from the first half of March. The daily chart is shown below:
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 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:
Granted, the market has not yet exhibited any significant signs of weakness or an impending pullback, but we would humbly like to remind subscribers that markets do indeed still go both up and down. Sometimes, as is presently the case, markets can persist in a trend for a surprising length of time, but the retracement will eventually come, often when the least number of market participants expect it. Realize that we are certainly NOT trying to call a top; rather, we are merely reminding you not to become complacent with winning positions.
| Open ETF positions:
Long – FXI, IAI, UUP |
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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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