Commentary:

The major indices followed up Wednesday’s bullish reversal with another day of broad-based gains on solid volume. Strength in the Biotech and Internet sectors led the Nasdaq Composite to a 0.7% gain. The S&P 500 similarly moved 0.4% higher. The Dow Jones, however, only gained 0.1% due to continuing resistance just below the 10,6000 level. Both the S&P Small and Mid-Cap Indexes continued to outperform all the other indices, as we discussed several days ago, with each index gaining another 0.9%. The S&P 400 Mid-Cap Index (and MDY) has closed at a new all-time high for the past three consecutive sessions. Although the indices were a bit choppy intraday, the Nasdaq closed strong at its intraday high. The S&P and Dow closed in the upper third of their intraday ranges, but below their respective morning highs.

Total volume in the Nasdaq was 8% higher than the previous day’s level, but volume in the NYSE declined by 2%. The 0.7% gain combined with the 8% increase in volume means yesterday was another bullish “accumulation day” for the Nasdaq. Volume in the NYSE dropped off a bit, but total volume in both exchanges has been higher in three of the last four “up” days. This confirms the uptrend that began in the beginning of May remains healthy and has not been falling victim to institutional selling during the recent consolidation. Market internals were solid throughout the day and closed strong. Advancing volume exceeded declining volume by a ratio of approximately 2.5 to 1 in both exchanges. Advancing issues beat declining issues by nearly 2 to 1.

In yesterday morning’s Wagner Daily, we predicted and explained why the June 15 mid-day reversal would likely create upside momentum over the next several days. Based on yesterday’s action, it appears the broad market and especially the Nasdaq will indeed see further upside in the coming days. The S&P 500 broke out of its June trading range and set a new 3-month high. Now that the index has cleared resistance of its multi-week consolidation, it also must contend with some horizontal price resistance just overhead at the 1,212 area. Beyond that, the S&P could see a run back up to its multi-year high of 1,225, which was set on March 7, 2005. The weekly chart of the S&P 500 below illustrates those resistance levels:

The Dow continues to struggle with its 4-week trading range that we have been extensively discussing. Like the S&P, the Dow also set a new multi-month closing high yesterday, but it has not actually broken out above the intraday highs of its range, which is marked by the red horizontal line on the chart below:

In the Nasdaq, Wednesday’s bullish “hammer” candlestick formation enabled the index to rally above resistance of its two-week range, but resistance still looms overhead at the 2,100 level:

As the index closed only 11 points below that level, it could become a factor today. However, the Semiconductor Index still looks great on its weekly chart. If it closes this week near at or above its current level, it will form a weekly “hammer” candlestick after two prior weeks of sideways consolidation. Such a pattern would be quite bullish and would likely result in a breakout to new highs next week. Nevertheless, it’s a good idea to remain a bit cautious on the long side because the Dow has yet to break out and confirm the strength in the Nasdaq. The S&P is also encountering some pretty significant overhead resistance as well. As we said all throughout May, the Nasdaq is the place to be if you’re long the market.

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Today’s Watchlist:

There are no new trade setups for today, as we are now long three ETF positions (BBH, SMH, and PPH).

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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:

BBH long (from June 16) –
bought 167.95, stop 165.10, target (new highs, will trail stop), unrealized points = + 1.05, unrealized P/L = + $105

PPH long (from June 7) –
bought 74.56, stop 73.20, target 79.60, unrealized points = + 0.24, unrealized P/L = + $24

SMH long (from June 1) –
bought 34.82, stop 32.10, target 44.90, unrealized points = (0.37), unrealized P/L = ($114)

Notes:

BBH triggered yesterday and we also remain long both PPH and SMH with the same stops.

Edited by Deron Wagner,
MTG Founder and
President