The major indices trended sideways to higher throughout the day, leaving most stocks with modest closing gains. The S&P 500 gained 0.4%, the Nasdaq Composite climbed 0.3%, and the Dow Jones Industrial Average advanced 0.2%. Small-caps returned to their pattern of relative weakness, as the Russell 2000 eked out a gain of just 0.1%. The S&P Midcap 400 was higher by 0.3%. Like the previous day, major stock market indexes drifted into the finish line in the upper third of their intraday ranges. Still, the gains were enough to push the S&P 500 and Nasdaq Composite to fresh 7-year highs, while the Dow continued its assault into new record high territory.
Total volume in the Nasdaq rose 2% above the previous day’s level, enabling the index to score a bullish “accumulation day.” But volume in the NYSE declined for the second consecutive day, registering 5% lower and remaining below average levels. Although the Nasdaq technically showed signs of institutional accumulation, market internals were not overly strong. In both the NYSE and Nasdaq, advancing volume exceeded declining volume by a ratio of just over 3 to 2.
Although it has lagged the broad market’s recovery from the March lows up to new highs, the Banking Index ($BKX) has been consolidating for the past several weeks and is now poised to break out. After falling apart on February 27, initial relative weakness in the Broker-Dealer Index ($XBD) carried over to the banking sector as well. As a result, most financial stocks lagged behind while the S&P and Dow marched to new highs. However, the financial arena has begun to look better over the past several weeks. As the daily chart below illustrates, the $BKX is nearing the breakout level above key resistance:
The Regional Bank HOLDR (RKH) has a similar chart pattern as the $BKX index, while the S&P Select Financial SPDR (XLF) is showing more relative strength. Notice that XLF already popped its head above the high of its consolidation yesterday:
The StreetTRACKS Gold Trust (GLD), which we analyzed in yesterday morning’s newsletter, continued to move higher. This time, it kept pace with the price of the Market Vectors Gold Miners (GDX), which we bought at $40.50, just over the May 2 high. Our target in GDX is a new high, at which point we will resort to trailing stops to protect profits. Our protective stop is presently near the low of May 2, below new support of the prior downtrend line that GDX broke out above.
The Semiconductor HOLDR (SMH), which we scratched for a small loss on May 2, has failed to show impressive follow-through since testing support of its breakout level on May 1. Early strength in the semiconductors helped SMH to rally yesterday morning, but it closed at its intraday low and a few cents lower than the previous close. It’s current price of $37.07 is only 2 cents higher than our attempted entry on May 2, so we’re not missing anything there. Nevertheless, we still like how it’s holding above its pivot of $36. Ideally, it will now consolidate a few days longer before resuming its uptrend. We continue to stalk SMH for a potential long re-entry.
The relative weakness in the Retail Index ($RLX) that we’ve been discussing over the past few days may soon provide a short entry in the StreetTRACKS Retail SPDR (XRT). The highly concentrated Retail HOLDR (RTH) is another option, but we like the much better diversification of underlying stocks in XRT. While most other industry sector ETF have been cruising higher in sync with the major indices, XRT has been moving sideways to lower over the past week:
The ideal short entry on XRT is a break below its 50-day moving average, just below yesterday’s low, but we would only take this trade if the broad market happens to be pulling back at the same time. Otherwise, odds are good that XRT dips below its 50-day MA, then snaps back above it just as quickly. Even weak stocks and ETFs have a difficult time following through to the downside when sentiment is so bullish. We must reiterate that aggressively selling short in such a bullish, resilient market is dangerous and not advised. However, the stock market will eventually correct from its recent gains and retrace a bit. When it does, the retail sector may provide among the best near-term short setups, both with the various Retail ETFs and individual leading retail stocks.
There are no new setups in the pre-market today. As per above, we are stalking SMH, XLF, and RKH on the long side, while monitoring XRT on the short side. However, we don’t want to list any of these as “official” pre-market setups because we first want to assess broad market action. Obviously, we are definitely in an uptrend, but the risk/reward for most new long entries are beginning to get negatively skewed because the major indices are due for a correction. This, of course, does not mean a downward retracement will come anytime soon, but it would be foolish to not consider risk/reward levels. As always, we will promptly send an e-mail alert if/when we make any intraday decisions for new trade entries.
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):
GDX long (500 shares from May 3 entry) – bought 40.50, stop 39.18, target new high (will trail stop), unrealized points = + 0.21, unrealized P/L = + $105
Closed positions (since last report):
Current equity exposure ($100,000 max. buying power):
Per intraday e-mail alert, we bought GDX yesterday when it broke out above the previous day’s consolidation.
Edited by Deron Wagner,
MTG Founder and