Commentary:
Continued strength in the tech arena launched the Nasdaq Composite to a new six-year high, pulling the other major indices higher as well. The Nasdaq Composite cruised 1% higher, while both the S&P 500 and Dow Jones Industrial Average gained 0.6%. The small-cap Russell 2000 gained 1.2%, moving back above its 50-day moving average in the process, and the S&P Midcap 400 rallied 1.1%. A wave of selling in the afternoon caused the major indices to finish off their highs, but still within the upper third of their intraday ranges.
Volume was higher across the board, enabling both the S&P and Nasdaq to register bullish “accumulation days.” Total volume in the NYSE was 4% higher than the previous day’s level, while the Nasdaq’s volume increased by 7%. The third straight day of higher volume gains in the Nasdaq confirms that institutions have been supporting the index, particularly the tech stocks. Advancing volume exceeded declining volume by more than 2 to 1 in both exchanges, but the NYSE volume spread was positive by as much as 6 to 1 earlier in the day.
The Biotech HOLDR (BBH) has been pretty dormant over the past year, but is now coming back to life. Yesterday, it surged 2.5% higher and closed above resistance of its prior high and closed at a new 52-week high. Similar to how the Semiconductor HOLDR (SMH) broke out above its one-year downtrend line yesterday, BBH broke out above its long-term downtrend line that has been in place since the high of November 2005:
The breakout in BBH was rather significant because of how long the downtrend line has been in place. As such, buying it on any pullback to the prior downtrend line provides you with a low-risk entry point in the position. A third ETF that is in the process of breaking a one-year downtrend line is the Internet HOLDR (HHH). It popped back above its 50-day MA yesterday and closed just above its downtrend line from the high of January 2006. If it holds, we would expect HHH to at least recover 50% of its peak to trough loss. That corresponds to a price target of around 61 on HHH:
While sectors like Biotech and Semiconductors have been rallying sharply over the past week, former leading industries such as Energy and Mining have been falling apart. Clearly, recent market action has been indicative of institutional sector rotation into industries that were stagnant throughout most of last year. Though the S&P and Dow both posted decent gains yesterday, money flow into the Nasdaq is much stronger. The breakouts in SMH, BBH, and HHH are proof of the divergence. For now, the most favorable odds for new long positions are within the Nasdaq sectors.
NOTE: The U.S. stock markets will be closed on Monday, January 15 in observance of Martin Luther King Day. As such, The Wagner Daily will not be published that day, but regular publication will resume on Tuesday.
Today’s Watchlist:
There are no new setups in the pre-market for today, although we are stalking both BBH and HHH for potential entry points on a pullback. We will send an intraday e-mail alert if/when we enter either of them.
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:
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Open positions (coming into today):
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SMH long (400 shares from Jan. 11 entry) – bought 35.17, stop 33.81, target 38.45, unrealized points = (0.19), unrealized P/L = ($76)
SDS long (400 shares from Jan. 3 entry) – bought 58.90, stop 57.13, target 61.95, unrealized points = (1.13), unrealized P/L = ($452)
Closed positions (since last report):
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MZZ long (250 shares from Dec. 19 entry) – See important notes below regarding this position
bought 63.46, sold 61.30, points = (1.02), net P/L = ($260)
Current equity exposure ($100,000 max. buying power):
- $37,100
Notes:
MZZ traded “ex-dividend” on December 20. As such, its price was adjusted lower to account for the dividend payment that was made to shareholders on December 27. The net result is no change in the overall profit or loss of the position, but stop and target prices had to be adjusted lower by the exact amount of the dividend distributions. The adjustment was $1.14 per share. Note that the “Unrealized points” and “unrealized P/L” figures already account for the dividend distributions that will be made.
Edited by Deron Wagner,
MTG Founder and
Head Trader