Broad market averages followed up Tuesday’s impressive advance with a lighter volume consolidation day, with most averages trading in the top half of the prior day’s candle. Tech stocks were noticeably weaker, as the Nasdaq Composite tested the prior day’s low before bouncing into the close. The Dow Jones Industrial Average held on to a positive close with a 0.2% gain. The S&P 500 Index slipped 0.1%. The small cap Russell 2000 index shed 0.6%. Showing relative weakness on the day, both the Nasdaq Composite and S&P MidCap 400 gave back 0.8%.
Turnover eased on both exchanges. NYSE volume sank 18% off the prior day’s pace, while Nasdaq volume lagged by 5%. The market internals confirmed the light volume with mild readings. Declining volume just edged out advancing volume by a 1.3 to 1 margin on the NYSE. The Nasdaq ratio was slightly worse, but still very average with declining volume beating advancing volume by 2 to 1. Yesterday’s light volume consolidation was a positive day for the bulls, but we did notice a little more selling on the Nasdaq.
The recent strength in solar stocks has enabled the Guggenheim Solar ETF (TAN) to reverse its downtrend by setting a series of higher highs and higher lows on the daily chart below:
TAN recently broke through its 200-day moving average after a significant rally off the lows. TAN may need a week or two of rest before it is ready to resume its uptrend. We have two possible scenarios for entry. Scenario 1 calls for a pullback of 6-7% off the recent swing high to the 200-day MA, around the 8.15 – 8.20 level. Scenario 2 is a potential breakout entry from a tight-ranged consolidation that forms over the next few weeks somewhere in the 8.25 to 8.60 area. The price action should not return back below the rising 50-day MA for the setup to stay remain intact.
With so many ETFs extended, we are focused on locating low-risk pullback entries and or breakouts from tight continuation patterns. In the meantime we can examine a few sectors that are on the verge of reversing trend.
Although the current rally has already shown a nice pick up in breadth with expanding leadership, it could certainly benefit from a strong semiconductor sector. The HOLDRS Semiconductor (SMH) is finally trading back above the 200-day moving average after a false breakdown below support in late August. The strong reversal off the lows led to a downtrend line breakout in late September. The price action is currently forming a fairly tight range above the 200-day MA and the downtrend line. SMH can confirm the downtrend line break by clearing the highs of the current range. We look for SMH to hold above 27.00 while consolidating.
The recent strength in commodity based stocks has given the S&P 500 quite a boost over the past few weeks. The one big drag on this index has been the lagging performance of the financial sector. While the S&P 500 doesn’t need the financials to lead it higher, it certainly couldn’t hurt for this sector to put in some higher highs and lows (we won’t hold our breath). At the very least, the market should be in good shape as long as the financials avoid setting new lows. SPDRs Select Sector Financial (XLF) has bounced off a double bottom pattern and is consolidating between the 50-day and 200-day moving averages. Aside from the great relative strength in foreign banks (mostly South American), there isn’t much to do right now with this sector. This is only something to keep an eye on (do note waste money in a laggard sector while the market is in rally mode).
Remember, since Tuesday’s rally corresponded with significant technical breakout levels in the major indices, there is a good possibility stocks will now start working on another leg higher. Nevertheless, it’s imperative to see proper follow-through within the next several days. Furthermore, bear in mind the major indices still remain well below their highs of the year. Only a move above those highs would cause the broad market to enter into a new, dominant uptrend.
There are no new setups in the pre-market today. However, now that the major indices have broken out above their multiweek ranges, we are monitoring for new long entries that provide a positive reward-risk ratio for entry near current prices. If we enter anything new, we will promptly send an Intraday Trade Alert with details.
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.
- Since YCS closed within a few pennies of the stop, we will be using a modified version of the MTG gap rules. The new stop will be the original stop of 16.35 OR 5 cents below the low of the first 20 minutes (in event of a gap down).
- 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 [email protected] if not already set up for this value-added feature we provide to subscribers.
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Edited by Deron Wagner,
MTG Founder and