Commentary:

Although stocks ended higher on Friday, a distinct divergence has entered the market. The health of the Nasdaq is in question as semiconductor and other tech stocks are on the cusp of losing support. Further, sector rotation is apparent. As technology and homebuilder stocks are getting hit hard, oil, emerging market and pharma/biotech stocks are rallying. Money is churning around the market at the expense broad based participation. The S&P MidCap 400 led all indices, as it posted a 0.7% gain on Friday. The small-cap Russell 2000, S&P 500 and Dow Jones Industrial Average all closed higher by 0.5%. The Nasdaq was the day’s laggard as it struggled to finish up by 0.3% on the day. It is also noteworthy that the Nasdaq and the S&P 500 closed in the bottom half of their intraday ranges.

Turnover ended the session mixed. Volume was up by 11.2% on the Nasdaq but down by 6.6% on the NYSE. While the NYSE saw advancing volume outperform declining volume by a ratio of 2.8 to 1, the Nasdaq saw declining volume move fractionally higher than advancing volume. Friday’s price action and market internals support the presence of sector rotation.

Below are eight ETF charts. Upon review of these charts it appears as if sector rotation is in full force. The SMH (semiconductors), TYH (technology), ITB (homebuilders) and IGN (networking) are all showing signs of distribution. On the other hand money is flowing into OIL (crude oil), IBB (biotechnology), IHI (medical devices) and EDC (emerging markets). Over the past several trading days the divergence among these ETFs provides reasonably clear evidence of sector rotation.

Money is rotating out of the following ETFs:

While money is moving into these ETF groups:

If the market sells off this week, the Nasdaq could very well lose its 50-day MA. Since the Nasdaq is generally a leading market indicator, this could result in a broad market pullback for several days. However, it is also possible that we continue to see both strong and weak sectors, thereby providing opportunities on both sides of the market, while the market consolidates.

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Today’s Watchlist:

There are no official setups this morning. As always, we will send an Intraday Alert if any new trades are made.

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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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Notes:

• 
  The second half of the SSG buy triggered (we now have 200 shares total). Per intraday alert, we establlished a long position in ENY.
  
  
• Reminder to subscribers – Intraday Trade Alerts to your e-mail and/or mobile phone are normally only sent to indicate a CHANGE to the pre-market plan that is detailed in each morning’s Wagner Daily. We sometimes send a courtesy alert just to confirm action that was already detailed in the pre-market newsletter, but this is not always the case. If no alert is received to the contrary, one should always assume we’re honoring all stops and trigger prices listed in each morning’s Wagner Daily. But whenever CHANGES to the pre-market stops or trigger prices are necessary, alerts are sent on an AS-NEEDED basis. Just a reminder of the purpose of Intraday Trade Alerts.
  
  
• For those of you whose ISPs occasionally deliver your e-mail with a delay, make sure you’re signed up to receive our free text message alerts sent to your mobile phone. This provides a great way to have redundancy on all Intraday Trade Alerts. Send your request to support@morpheustrading.com if not already set up for this value-added feature we provide to subscribers.

Edited by Deron Wagner,
MTG Founder and
Head Trader