Commentary:
The first half of yesterday was a relatively quiet trading session, but the major indices rallied and volume increased after the Federal Reserve announced a 0.25% increase in the fed funds interest rate. Yesterday’s quarter point increase marked the first time the Feds have raised interest rates since May of 2000, shortly after the Nasdaq Composite peaked at 5,000. Although a quarter point rate hike was largely expected by economists, it was Fed comments that future rates would happen in a gradual, controlled manner that probably sparked the late afternoon rally. The tech-heavy Nasdaq Composite Index once again led the broad market, and closed with a gain of 0.6%. The S&P 500 Index closed 0.4% higher. The blue-chip Dow Jones Industrial Average continued to lag the other indices and only gained 0.2%. Technology-related sectors such as Semiconductors, Internet, and Telecom led the afternoon rally, while the Pharmaceuticals lagged.
As you might expect, volume in the first half of the day was very light, but increased significantly after the 2:15 pm EST Fed announcement. Total market volume in the NYSE increased by 7%, while volume in the Nasdaq was 10% higher than the previous day. Volume also came in above 50-day average levels on both the NYSE and Nasdaq exchanges. Because the broad market closed higher AND on higher volume, yesterday was another bullish “accumulation day,” the third within the past two weeks.
Yesterday afternoon’s rally in the Nasdaq pushed the index to its highest level since April 27. As you may recall, the Nasdaq Composite broke above its 6-month downtrend line on June 23, and has been acting bullish since then. The index has set a “higher low” on the daily chart, and has also set a “higher high” by closing above its June 8 high. This means the Nasdaq is now in an intermediate-term uptrend. However, the index is now approaching a more significant prior high, from April 23 – 27, that may act as resistance in the next several days. The daily chart of the Nasdaq below illustrates the prior highs that will act as resistance, near the 2,053 level:
One of the most bullish things happening in the market right now is that the Semiconductor (SOX) Index broke out above a downtrend line that has been in place for 6 months. As it often does, the SOX will probably help to pull the Nasdaq higher. The weekly chart of the $SOX below illustrates this breakout:
As for the next resistance level on the S&P 500 Index, it’s the same story we’ve been talking about for the past two weeks; the 1,146 to 1,147 area continues to act as major resistance. A rally above the 1,147 area would represent the first “higher high” since the S&P broke above its primary downtrend line on June 7. However, until that happens, the S&P technically remains in a sideways trading range, rather than an uptrend. On the chart below, notice how many times the S&P has attempted, but failed to close above its prior high from April 27:
Needless to say, a closing price above 1,147 would be quite bullish for the S&P and would confirm the strength the Nasdaq has been showing for the past two weeks. But, until that happens, we feel the S&P and Dow may both act as a drag on the Nasdaq. When all three indices are showing similar strength or weakness, the odds of follow through in the direction of the trend are increased. However, if one index is much stronger than the others, as the Nasdaq is right now, it often generates indecisive trading action. If you’re going to be long, odds clearly favor the technology-related sectors right now. However, you may also want to test the waters on the short side of laggard sectors in the S&P and Dow. Consider pharmaceuticals and retail on the short side. Overall, we are cautiously bullish right now, but will be much more bullish IF the S&P and Dow are able to rally above their prior highs that we have been discussing.
Today’s watch list:
SMH – Semiconductor HOLDR
Long
Trigger = above 38.10 (above weekly downtrend line)
Target = 40.10 (50% Fibonacci retracement level of this year’s downward move)
Stop = 37.30 (below yesterday’s low)
Notes = The Semiconductor Index is breaking a downtrend line that has been in place for six months, so we want to participate in this move through buying SMH.
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 all cash yesterday.
Edited by Deron Wagner,
MTG Founder and
President