Commentary:

Bagging their fourth straight day of gains, stocks cruised higher yesterday, enabling the major indices to close at their highest level since early May of 2010. The major indices opened higher, trended north throughout most of the day, then pulled back in the final 90 minutes of trading. The Nasdaq Composite jumped 1.0%, as the S&P 500 Index and Dow Jones Industrial Average registered identical gains of 0.7%. The Russell 2000 and S&P MidCap 400 advanced 1.5% and 0.9% respectively. Because of softness into the close, the main stock market indexes closed near the middle of their intraday ranges, which was only slightly above their opening prices.

Turnover surged across the board, as institutions supported yesterday’s buying. Total volume in the NYSE ticked 26% higher, while volume in the Nasdaq similarly rose 18% above the previous day’s level. This time, trading in both exchanges was well above 50-day average levels. Market internals were also solid. In both the NYSE and Nasdaq, advancing volume exceeded declining volume by a margin of approximately 3 to 1.

Most of the ETFs currently trading at new 52 week highs, or even all-time highs, are international ETFs, particularly those of emerging markets. Within the domestic stock markets, we are not seeing a lot of bullish divergence within specific industry sectors. But one exception is First Trust Dow Jones Internet Index Fund (FDN). The daily chart is shown below:

Last month, FDN broke out to a fresh all-time high, when it rallied above its April 2010 peak. For the past three weeks, FDN has been consolidating at its highs, in a tight, sideways range. Over the past week, the 20-day exponential moving average (the dotted beige line) has been perfectly acting as support. Now that the 20-day exponential moving average has caught up to meet the price of FDN, the ETF may be poised to break out above the high of its consolidation, and begin making another leg higher within its dominant uptrend. The high of the consolidation is $30.62, so a potential breakout buy entry would be about 10 cents above that level.

Thanks to yesterday’s rally, all the main stock market indexes are now trading at their best levels since before the May 6 “flash crash.” Considering the range-bound, apathetic price action of the summer months, that is certainly an accomplishment. However, the broad-based indices are now approaching major resistance of their April 2010 highs, which are also their 52-week highs. While the overall broad market trend has been bullish since the beginning of September, the ability or inability of the major indices to break out above their April highs will soon show us what this market is really made of.

A convincing rally above the April highs in the main stock market indexes would be quite positive, as it would cause stocks to establish new dominant uptrends. But until that happens, a healthy degree of caution should be exercised near current price levels, due to significant impending price resistance and overhead supply. While it certainly a good idea to continue taking advantage of the bullish trend, consider tightening stops on any winning long positions, in order to lock in nice profits when the inevitable pullback/shakeout eventually comes.

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Today’s Watchlist:

There are no new setups in the pre-market today. With yesterday’s buy entry into USO, our model ETF portfolio is now utilizing its maximum buying power.

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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:

• We have raised the stops on three open positions, as noted by the pink-shaded cells on the table above.
• USO triggered for buy entry on yesterday’s open, as per the pre-market details listed in yesterday’s ETF watchlist.
• On October 1, EMB paid a dividend of $0.445 per share. The distribution has been included in the “Points” and “Unrealized P&L” columns.
• 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