The Nasdaq snapped its three-day pullback yesterday, resuming the short-term uptrend that began last week. The other major indices tagged along, enabling strong gains to register across the board. The Nasdaq Composite zoomed 1.8%, as did the small-cap Russell 2000 Index. The S&P 500, Dow Jones Industrial Average, and S&P Midcap 400 indices each rallied 1.5%. Despite a significant retracement in the early afternoon that prevented the session from being a powerful "trend day," stocks recovered to close near their intraday highs.
Total volume in the NYSE swelled 10%, while volume in the Nasdaq similarly ticked 11% above the previous day's level. The broad-based gains on higher volume enabled both the S&P and Nasdaq to register a bullish "accumulation day" that was indicative of institutional buying. The increased trading activity was also a positive follow-up to the prior day's lighter volume losses. Still, turnover in both the NYSE and Nasdaq only marginally exceeded average levels. Market internals were firm. Advancing volume in the NYSE exceeded declining volume by nearly 4 to 1. The Nasdaq ratio was positive by just over 2 to 1.
On December 4, we bought the Pharmaceutical HOLDR (PPH) when it broke out above the upper boundary of its "bull flag" formation on the daily chart. Yesterday, PPH followed through with a solid rally up to resistance of its near-term high. A move above yesterday's high will correspond to a breakout above its October high, which should lead to further gains over the next week. Along with our long position in the iShares DJ Utilities Average (IDU), which is now showing an unrealized gain of approximately 5 points, PPH is one of the few industry sector ETFs showing relative strength by trading at or near its high. The bullish pattern in PPH is shown on the daily chart below:
Since peaking in early November, both the spot gold and silver commodities have been correcting off their highs. The correction has correspondingly caused both the proxy StreetTRACKS Gold Trust (GLD) and iShares Silver Trust (SLV) to correct down to their 50-day MAs. Between the two, GLD has shown slightly more relative strength than SLV during the pullback. When SLV touched its 50-day MA three days ago, it marginally violated its prior low from November 19. GLD still held above its prior low. Nevertheless, the chart pattern in SLV is a bit more clear, as it is now poised to break out above its one-month downtrend line after bouncing off key support of its 50-day MA:
A breakout above the downtrend line shown above could set in motion a resumption of the primary uptrend in SLV. An ideal long entry would be on the breakout above the December 4 high. A protective stop can be placed just below the 50-day MA. Regular subscribers to The Wagner Daily should note our specific entry, stop, and target prices listed below. One word of caution with this setup, however, is that the prices of gold and silver are often affected by changes in the value of the U.S. dollar. As such, you may also wish to keep an eye on the price of the CurrencyShares Euro Trust (FXE), which may be in the process of correcting lower. If it does, it could negatively impact the prices of gold and silver.
In yesterday's Wagner Daily, we said that stocks are likely to remain in a sideways range until the December 11 Fed meeting. With resistance of the November 30 "swing highs" and support of the December 4 intraday lows in place, this is still the most probable scenario in the near-term. But one factor that could change the technical picture is a potential breakout of the S&P 500 above its 200-day MA. Take a look at this interesting scenario on the daily chart:
As you can see, the S&P attempted to move back above its 200-day MA on both November 14 and 30, but failed both times. Yesterday, the index closed right at its 200-day MA, meaning it will once again be testing key resistance of its 200-day MA. With both the Nasdaq and Dow back above their 200-day MAs, it would certainly be good for the broad market if the S&P can join them. However, note that the 50-day MA looms overhead at the 1,503 level. Therefore, it may be wise to restrain your buying enthusiasm until we see how institutional traders react to the S&P's test of its 50-day MA. If long the market, be sure you're positioned in sectors with relative strength (utilities, health care, pharmaceuticals, and biotechs). The Gold/Silver ETFs and stocks also bear watching, as the sector could easily break out again.
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In this column, MTG presents you with a FREE, actual trade setup that we are stalking for entry at some point during the week. Note that, unlike the daily guidance that regular Stalk Sheet subscribers receive, this free Stalk of the Week does not take into account overall broad market conditions that can easily affect the trade over the next several days. This week's setup is:
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Below is the weekly commentary that accompanied the most recent ETF Trend Tracker, e-mailed to subscribers last weekend. The Morpheus ETF Trend Tracker, a perfect supplement to the ETF Roundup guide, is a comprehensive table of Exchange Traded Funds (ETFs) designed for informed investors and longer-term traders who prefer to hold their ETF positions for a few weeks to several months at a time. Based exclusively on a weekly analysis of trendlines on the daily and weekly charts, the ETF Trend Tracker provides subscribers with a thorough snapshot of the primary trend direction of ETFs in every category from broad-based to industry sector to international. This information is e-mailed to subscribers weekly, in a user-friendly format that groups ETFs based on the direction of their primary trends.
Commentary:The major stock market indexes posted new recent lows at the beginning of last week, then rallied sharply to close the weekly session. Price patterns have been very volatile as we enter the last month of the year. We are watching for resistance in the mid-November swing highs to stall out the counter trend rally, but the S&P 500 (SPY) and the Dow 30 (DIA) have already broken above those levels. Keep stops firm and manage your position size accordingly, using volatility as guidance.
The stand out industries last week were those related to Health. Starting with Biotech (BBH), the rally helped push the ETF to test new highs posted in early November. Analysis of weekly charts indicates a series of resistance levels above, which will break down long-term momentum. Healthcare (XLV) and Pharmaceuticals (PPH) triggered into the "ascending trend" list. Healthcare will be testing its May highs next. The energy and precious metals weakened as money rotated out of those sectors and into Healthcare. Evaluate each chart in this week's updated ETF Trend Tracker report to look for additional entry setups. Entry setups are the Reversal Stops (S2) annotated on each chart. The Reversal Stops become Triggers (T) when prices trade beyond the levels.
In our Specialty sectors, US Oil (USO) closed the week below the swing low support and has hit the lower trend channel support. Natural Gas (UNG) also broke below a major support level and is new to the "descending trend" list. Euro Currency (FXE) may be beginning to roll over, after setting four consecutive declining days.
The bond market consolidated for the week and did not give back too much of earlier gains. Stops were raised in the mid and long-term bonds to lock in action from the previous rally.
The International sectors are staging a rally after a short stay in the descending trend. The European ETFs are taking the lead this time. Germany (EWG) is now in the ascending trend, and the others are not far behind. The newly introduced India (INP) ETF has a wide daily trading range and has broken above October high resistance and into new highs. INP has a tendency to trade below previous support (once resistance) before heading higher.
Alert of imminent reversal to the upside:Click to receive your free 1-month trial to the ETF Trend Tracker (limit one free trial per household), which will be e-mailed to you every week, along with intra-week updates on an as-needed basis.