Commentary:
The Nasdaq Composite moved 0.5% higher yesterday, enabling the index to register its seventh consecutive day of gains. Both the S&P 500 and Dow Jones Industrial Average kept pace with the Nasdaq, closing higher by 0.4% and 0.5% respectively. The Semiconductor Index, which has been on fire lately, finally took a rest, but closed lower by only 0.3%. Like the previous day, the major indices spent the first half of the day trading in a narrow, sideways range. Buyers stepped in and lifted the broad market higher at 2:00 pm EDT, but the major indices quickly gave back most of those gains during the final hour of trading. Unlike every bullish day of last week, the major indices closed near the middle of their intraday ranges instead of their highs. This tells us the broad market may be setting up for at least a mild correction, either in the form of a price retracement or simply a sideways consolidation.
Total volume in the Nasdaq increased by 9% yesterday, which means the Nasdaq achieved another “accumulation day.” Volume in the NYSE, however, declined by 1%. Market internals were bullish overall, as advancing volume outpaced declining volume by a ratio of 2 to 1 in both exchanges. As we saw throughout most of last week, the Nasdaq has not only begun registering higher percentage gains than the S&P and Dow, but is also doing so on higher volume. This tells us institutions remain interested in buying the tech and biotech-related issues as opposed to former market leading sectors such as Utilities, Materials, and Oil, each of which are represented primarily in the S&P.
Although the Nasdaq has surged firmly higher over the past seven days, the Dow Jones Industrial Average has been lagging behind and closed yesterday at a significant technical resistance level. The Dow broke out above its 50 and 200-day moving averages four days ago, but has run into resistance of its prior highs from late March and early April:
The recent relative weakness in the Dow means it will likely be the first index to correct when/if the broad market sees a price correction. For those of you who are very short-term traders, you may consider shorting DIA on a broad market correction, as it appears to be the weakest of the broad-based ETFs right now. However, odds overall probably favor the long side of the market due to the strength in the Semis and the Nasdaq.
Other than the Dow coming into resistance, yesterday’s broad market price action did little to change the short-term technical outlook. As discussed extensively in yesterday’s newsletter, we continue to like both the Semiconductor and Biotech sectors on the long side. We are simply waiting for a either a correction by price or time, either of which would provide low-risk entry points in the SMH and BBH exchange traded funds. Although we anticipate a short-term correction within the next several days, we do NOT recommend attempting to aggressively enter new short positions here. Market internals and the price to volume relationship in the broad market remains bullish overall, so it would not be wise to fight the new short-term uptrend that began with last week’s broad market breakout. Instead, maintain a list of ETFs and stocks that you would like to buy when you see a retracement down to a key support level. If the broad market corrects today, we will take a look at some of the important support levels in tomorrow’s newsletter. If it doesn’t, simply continue to hold existing long positions with relatively tight trailing stops.
Today’s Watchlist:
There are no new plays for today, although we will be looking for long positions on the first minor correction in the Nasdaq. Both SMH and BBH are looking good for long entry on a correction. As always, we will send an intraday e-mail alert to Wagner Daily subscribers if/when we enter any new ETF positions intraday.
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:
-
UTH short (from May 13) –
shorted 103.64, stop 105.60, target 99.10, unrealized points = (1.11), unrealized P/L = ($111)
Notes:
No changes today.
Edited by Deron Wagner,
MTG Founder and
President