The major indices registered impressive gains after breaking out above key resistance levels in yesterday’s session. The broad market began the day with an opening gap up, trended steadily higher throughout the entire day and eventually closed at its high. The Nasdaq Composite and Dow Jones Industrial Average both gained 1.3%, while the S&P 500 moved 1% higher. Although most industry sectors turned in decent performances, strength continued to be pronounced within the tech-related sectors. The Philadelphia Semiconductor Index ($SOX), for example, achieved its sixth consecutive day of gains.
Yesterday was the first solid “accumulation day” that both exchanges have had in quite a while. Total volume in the Nasdaq market surged 28% higher to just over 2 billion shares. It was the highest volume day since April 29, indicating that institutions were likely behind yesterday’s gains. In the NYSE exchange, volume increased by 19%, also above its 50-day average level. Internals were also strong with advancing volume outpacing declining volume by a margin of approximately 5 to 1 in both exchanges. Recent rallies have been lacking in volume and have shown broad market divergence, but yesterday’s gains were solid across the board and a sharp increase in volume confirmed the move.
One of the reasons for yesterday’s surge in turnover is that several of the major indices confirmed their breakouts above key resistance levels. When this occurs, volume usually spikes higher due to many traders’ buy stops being triggered on the way up. The most significant break of resistance occurred in the Nasdaq Composite, which confirmed a breakout above its five-month downtrend line. The breakout also put the index well above prior resistance of its 200-day MA, which is now converging with the prior downtrend line just below the 2,000 level. The descending orange line on the daily chart of the Nasdaq below marks the prior resistance (new support) of the former downtrend line:
Another important breakout occurred in the S&P 500, which closed above resistance of its 50-day moving average for the first time since March 15. The index also rallied back above resistance of its prior uptrend line on the weekly chart, which we discussed in yesterday’s newsletter. The daily chart of SPY below mirrors the breakout that occurred in the S&P 500:
Finally, even the formerly lagging Dow Jones Industrial Average broke out above convergence of both its 50 and 200-day moving averages. The daily chart of DIA below shows the breakout:
Prior to yesterday, our bias was mixed. We were bullish on the short-term of the Nasdaq, but were moderately bearish on the S&P and Dow. This was because only the Nasdaq was showing relative strength and breaking out of resistance on its charts. However, yesterday’s price and volume action changed everything. Each of the three major indices are now once again trading above their 20, 50, and 200-day moving averages. This tells us that we should no longer have an overall bearish outlook on the short-term, although the intermediate and longer-term picture may be a different story. Odds probably favor the long side of the market in the short-term, but a lot of overhead resistance remains on the weekly charts, and we don’t feel it will be a smooth ride back up to the prior highs. So, go ahead and buy those stocks and sectors with relative strength, but remain vigilant and trail your stops to protect gains in the even the broad market is not able to absorb the overhead supply from here.
There are no new plays for today, although we will be looking for long positions on the first minor correction in the Nasdaq.
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.
DIA short (from May 10) –
shorted 103.17, covered 104.24 (avg.), points = (1.07), net P/L = ($218)
XLF short (from May 12) –
shorted 28.63, covered 29.28, points = (0.65), net P/L = ($398)
UTH short (from May 13) –
shorted 103.64, stop 105.60, target 99.10, unrealized points = (0.47), unrealized P/L = ($47)
Both DIA and XLF stopped out yesterday, but we remain short (and still like) UTH.
Edited by Deron Wagner,
MTG Founder and