Waiting for the Dow to make up its mind


All the major indices closed up on Friday, with higher beta issues leading the advance. But as has been common lately, volume was tepid. Early morning trade was choppy, though stocks broke through resistance at the 11:30 am reversal period and rallied at a steady pace throughout the afternoon. The small-cap Russell 2000 was again the biggest gainer on the session, as it closed 1.2% higher. The S&P MidCap 400 and the Nasdaq advanced 1.0% and 0.8% respectively. The S&P 500 rose 0.6%, as the Dow Jones Industrial Average realized a more modest 0.4% improvement for the day. For the week, the Dow significantly lagged both the Nasdaq and S&P 500. While the Nasdaq and S&P 500 posted respective gains of 1.8% and 1.3%, the Dow eked out an unimpressive 0.2% gain over the last five sessions.

For both indices, turnover finished lower than the previous day’s levels. Turnover was off by 11% on the Nasdaq, but only 2% on the Big Board. Advancing volume outpaced declining volume on both exchanges by 3.5 to 1. Despite lackluster internals, the broad market appears to be on the brink of a major breakout. As stated several times in recent newsletters, the Dow probably holds the key to the advance. If the Dow can break above the November swing high, volume should spike to confirm institutional commitment.

On Friday, the iShares Dow Jones Medical Devices ETF (IHI) skyrocketed through resistance on serious volume to set a new six-month high. The breakout of this ETF was an extremely bullish move. Not only was volume nearly six times greater than the 50-day moving average, but it also accounted for almost 75% of last week’s volume. Further, IHI opened at the low and closed almost at the high of the day. This type of price action following a strong gap-up makes the move all the more impressive. The strong volume points directly to institutional accumulation and suggests significant upside potential. A pullback to the May 6th high of $57.28 provides a potential buy trigger for IHI. It’s often difficult to get a good entry on explosive moves. One strategy to deal with this situation is to take on a smaller position and set a wider stop. The market rarely provides a perfect entry point on explosive moves:


The iShares MSCI Chile Investable Market Index ETF (ECH) has been consolidating between $75.00 and $80.00 for the past six weeks. This follows a breakout from a seven-week trading zone, which now serves as support (see weekly chart below). Further, on the daily chart, this ETF has been coiling in a tight zone since testing support on November 16th. This consolidation has been accompanied by declining volume, which is generally considered bullish. ECH has also demonstrated relative strength compared to other emerging market ETFs. A break above the 4-day high of $79.00 on strong volume would likely provide a buying opportunity for ECH. We are monitoring this ETF closely for a possible entry:



The market appears as if it may rally for the balance of the year. A breakout in the Dow and an increase in market volume would probably confirm this opinion. However, the Dow needs to confirm very soon. Otherwise, a sudden breakdown below recent support in the Dow would likely hold the broad market in check.

Today’s Watchlist:

There are no new setups in the pre-market today. As always, we will promptly send an Intraday Trade Alert with trade details if any new positions are entered.

Daily Performance Report:

Below is an overview of all open positions, as well as a performance report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based on the $50,000 Wagner Daily model account size. Changes to open positions since the previous report are listed in red text below. Please review the Wagner Daily Subscriber Guide for important, automatic rules on trigger and stop prices.

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  • No changes to the open positions above.
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      Edited by Deron Wagner,
      MTG Founder and Head Trader