Commentary:

After beginning the day with a modest rally during the first thirty minutes of trading, the broad market spent the remainder of the day trading in a narrow, sideways range and showed no hint of either a bullish or bearish bias into the close. Nevertheless, the opening gains held firm and enabled the S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average to each close with a 0.4% gain. Many industry sectors were mixed, but the Pharmaceutical and Healthcare sectors clearly showed the most relative strength. Many individual stocks within those sectors broke out and held at new 52-week highs, a rare feat as of late.

The Nasdaq had its first “accumulation day” in approximately a month yesterday because the index not only closed higher, but did so on a 4% increase in total volume. The S&P and Dow, however, continued their bearish patterns of lighter volume on the “up” days, as NYSE total volume came in 10% lighter than the previous day’s level. It would have been more bullish if the Nasdaq’s gain was more substantial, but at least it was a positive sign to see higher volume on an “up” day. We will continue monitoring the relationship between price and volume closely, as another day or two of accumulation in the Nasdaq could be enough to trigger some bullish momentum. Obviously, we also need to see the NYSE volume improve on the “up” days as well.

One ETF that you may offer a good risk/reward is PPH (Pharmaceutical HOLDR), which broke out above resistance of its 200-day moving average yesterday. The Pharmaceuticals have been beaten down over the past year, but it appears we are now seeing institutional sector rotation out of last year’s leading sectors and in to some of the formerly lagging sectors such as Pharmaceuticals. If the broad market continues to push higher over the next week, Pharmaceuticals are likely to lead the way. But even if the broad market fails to move higher, this sector will likely be very slow to head down with the major indices due to its newfound relative strength. Buying sector ETFs with relative strength provides more profit potential when they move in your favor, but also subjects you to less risk if the broad market doesn’t cooperate. Take a look at the daily chart of PPH below and reference the commentary below:

Looking at the chart above, you will notice that PPH first attempted to break out above its 200-day MA in the beginning of March, but only stayed above it for three days before heading back down. However, one difference with yesterday’s action was that PPH closed well above the 200-day MA and also closed at its intraday high. Now we need to see PPH rally above its prior high from last month, which also happens to coincide with resistance from last December. The red horizontal line marks resistance of these prior highs. A confirmed break out above the horizontal line would also represent confirmation of a primary trend reversal, which is annotated on the longer-term weekly chart of PPH below:

As discussed extensively over the past week, we continue to feel the broad-based ETFs such as SPY, DIA, and QQQQ are bad bets, regardless of whether you want to be long or short. There are just too many players on both sides of the market right now because of the important proximity of those January lows, as well as the pivotal 200-day MA on the Nasdaq. Each of the major indices are in the middle of their ranges of the past week, so it’s not a good risk to predict the next move, especially given the indecisive nature of the broad market lately. However, there may be a few industry sector ETFs that are starting to look decent, PPH being the first one that came onto our radar. As such, we are stalking PPH for long entry today, as detailed below.

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Today’s watch list:

PPH – Pharmaceutical HOLDR
Long

Trigger = above 73.65 OR below 72.90 (whichever comes first)
Target = 77.60 (61.8% Fibo retracement of primary downtrend)
Stop = 71.80 (below yesterday’s low)

Notes = We are looking to buy the break out above the prior high of March OR on a minor retracement down to yesterday’s support just below 73, whichever comes first. Complete explanation of trade setup is in commentary above.

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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:

IWM short (from April 1) –
shorted 121.79, stop 123.80, target 117.70, unrealized points = (0.52), unrealized P/L = ($52)

Notes:

No changes today.

Edited by Deron Wagner,
MTG Founder and
President