After beginning the day with an opening gap up, the broad market traded sideways throughout the first half of the day, but a broad-based rally during the final ninety minutes lifted the major indices to close with solid gains. Small cap stocks led the way, as the Russell 2000 Index zoomed 2.0% higher. Strength in the Biotech and Technology sectors similarly helped drive the Nasdaq Composite to a 1.5% closing gain, while the S&P 500 followed suit with a 0.9% advance. The S&P Midcap 400 Index gained 1.4%, but the Dow Jones Industrials once again lagged behind and moved only 0.4% higher.
Confirming yesterday’s buying spree was the fact that turnover rose on both exchanges. Total volume in the NYSE came in 5% higher, while volume in the Nasdaq was 8% higher than the previous day’s level. This means that both the S&P and Nasdaq registered a bullish “accumulation day” and indicates institutional demand was behind the rally. Volume in both exchanges came in higher than it did during Tuesday’s bearish “distribution day.” Such a rise in turnover, combined with yesterday’s broad-based gains, basically erased the negative effect of Tuesday’s losses. Market internals were also impressively bullish yesterday. Advancing volume exceeded declining volume by a ratio of more than 4 to 1 in the NYSE and 7 to 2 in the Nasdaq.
Looking at yesterday’s individual sector performance, you will see that nearly every industry moved firmly higher. Sectors ranging from Transportation to Consumer to Technology all showed strong signs of accumulation, as a plethora of industry sectors closed at new 52-week highs yesterday. Among them were Transportation ($DJT), Biotech ($BTK), Internet ($GIN), and Insurance ($IUX). New long entries over the next several weeks should be concentrated within these sectors, as they are showing the most relative strength to the broad market. The Gold Mining Sector ($GOX) also zoomed another 1.5% higher to a record high, bringing the sector’s two-day gain to 7.8%. Moving in sync with the Gold Mining sector was Spot Gold, as GLD (Gold Trust) also gained another 1.5%. We remain long our full position of GLD and continue to trail a stop higher. As for weak sectors, Oil ($XOI) was about the only major industry that closed lower yesterday.
One industry that is poised to break out to new highs, but has not yet done so, is Software ($GSO). As the weekly chart below illustrates, the sector has been consolidating in a relatively tight range for the past six months and finished yesterday only 2% below its 52-week closing high:
If trading individual stocks within the Software sector, watch for confirmation of a breakout above last week’s high of 171.14. SWH (Software HOLDR) is the primary ETF that tracks the Software sector. SWH is currently showing a similar chart pattern to the $GSO index.
Among the most significant technical events in yesterday’s session is that the Nasdaq Composite closed at a fresh 4-year high yesterday! Although the Nasdaq 100 Index has been trading at a new high for the past week, the broader-based Nasdaq Composite had been lagging behind. But yesterday’s action was impressive because it clears out all prior resistance from overhead supply. The prior resistance level of 2,200 should now act as the new support. The weekly chart of the Nasdaq Composite below illustrates the breakout:
Also of technical importance is that the S&P 500 broke out and closed above its 3-month downtrend line that had been in place since the high of August 3. It also closed above its prior high from September, giving the index its first “higher high” on the weekly chart and hinting at a possible trend reversal and new intermediate-term bull market. The S&P is now less than 2% away from setting a new 52-week high. In order to do so, the index needs to close above its August 3 high of 1,245. All traders’ eyes will be closely watching to see how the S&P acts near this key pivotal level:
Needless to say, the bearish picture from last month has been completely erased. There are many sectors and ETFs that have broken out of long bases and have no overhead supply to contend with. Obviously, those are the ones to position yourself on the long side. Conversely, we are seeing very few short setups and are not interested in fighting the trend. Remember that the professional traders always trade what they see, not what they think!
There are no new setups for today because we are near our maximum equity exposure of $100,000 (based on the position model).
Daily Performance Report:
Below is an overview of all open positions, as well as a performance report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based on the $50,000 Wagner Daily model account size. Changes to open positions since the previous report are listed in red text below:
Open positions (coming into today):
GLD long (1000 shares total – 700 from Nov. 11 entry and 300 from Nov. 16 entry) –
bought 46.98 (avg.), stop 47.10, target new high (will trail stop), unrealized points = + 1.50, unrealized P/L = + $1,500
TLT long (500 shares from Nov. 16 entry) –
bought 89.87, stop 88.89, target 92.15, unrealized points = + 0.69, unrealized P/L = + $345
Closed positions (since last report):
Current equity exposure ($100,000 max. buying power):
Note the new stops on both open positions. If GLD gaps up again, we may sell a partial position of GLD into strength today. As always, we will send an intraday e-mail alert if/when we do.
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Click here to view MTG’s past performance results (updated monthly).
Edited by Deron Wagner,
MTG Founder and