Commentary:
The major indices began the week on a positive note, but the minimal volume of yesterday’s holiday session prevented the broad market from picking up much momentum. The Nasdaq Composite gained 0.4% yesterday, but volume was 29% lighter than last Friday. The S&P 500 Index gained 0.2% and the Dow Jones Industrials closed 0.3% higher, but volume in the NYSE similarly declined by 24%. Because the overall gains were marginal and volume was so light, it’s difficult to read much into yesterday’s action. Yesterday was essentially a non-event from a technical perspective. However, quarterly corporate earnings season begins this week, so volatility and volume should both increase.
The Semiconductor Index ($SOX), which we have been closely following since the current rally began in early September, began the day in the red, but later found support of its 50-day moving average and reversed to close 0.5% higher. Interestingly, the 50-day MA also converged with the lower channel support of the current uptrend line from September’s low, which also gave the $SOX reason to move higher. The daily chart below illustrates how the $SOX reversed after selling off down to support of both its 50-day MA and daily uptrend line (in blue):
Because the Semis are so heavily weighted with the Nasdaq, we will remain bullish on the Nasdaq in the short-term, as long as the $SOX holds above convergence of its 50-day MA and daily uptrend line. However, a closing break below this key support level will cause us to re-assess our position.
We want to make you aware that a new ETF has begun trading, one that we are quite excited about. The ETF is called the iShares FTSE/Xinhua China 25 Index Fund, which trades on the NYSE under the ticker FXI. Until now, the best way to trade a basket of Chinese stocks was through a closed end fund like the China Fund (CHN). With CHN, the share price of the stock is based on supply and demand, like any other stock, rather than being tied directly to the price of its underlying components, as all ETFs are. You can read more about this new ETF by clicking here or by going to the iShares web site. Many individual Chinese ADRs such as CTRP, LTON, and CYD are once again beginning to show strong gains. Because China is poised to be the next world economic player, keep a close eye on this ETF. Morpheus Trading Group will soon be adding this new ETF to its list of ETFs that are regularly traded. Now, if only the SEC would approve the new ETF that is going to track the price of gold. . .
The most important thing to be aware of in the coming week is the flurry of quarterly corporate earnings report scheduled to be released. Merrill Lynch, Johnson & Johnson, and Travelzoo are a few big names reporting before today’s open, while Intel and Yahoo! are reporting after the close. Tomorrow will see earnings reports from, among others, Apple Computer, Novellus, QLogic, and SanDisk. Volume may again be light today, as many investors are likely to remain on the sidelines ahead of the Intel report. However, it should pick up as the week progresses and traders digest the numerous reports. For a complete list of scheduled reports, check out the free earnings calendar on the Yahoo! Finance web site. As you prepare your trading plan for the week, remember the only thing that matters is how the market reacts to earnings reports, not the details of the reports themselves.
Today’s watch list:
HHH – Internet HOLDR
Short
Trigger = below 59.75 (below yesterday’s low)
Target = 57.15 (support of prior “swing low” on daily chart)
Stop = 61.20 (above hourly downtrend line)
Notes = The Internet sector is once again showing signs of exhaustion, and the longer-term weekly chart appears to be forming a “lower high.” We believe the sector will at least correct down to support of its prior low from September. However, note that Yahoo! reports earnings after tomorrow’s close, which increases the degree of risk in this trade. Regardless, we feel the setup still presents a positive risk/reward from here.
Daily Reality Report:
Below is Morpheus Trading Group’s daily
performance report of closed trades and an update on all open positions from The
Wagner Daily (Intraday Real-Time Room trades are reported separately in The
Wagner Weekly). Net P/L figures are based on the quantity of shares represented
in the MTG Position Sizing Model.
Closed Positions:
-
(none)
Open Positions:
-
(none)
Notes:
We were flat the ETFs yesterday.
Edited by Deron Wagner,
MTG Founder and
President