Commentary:
Yesterday was a bit of a snoozer, as the S&P 500 opened flat, then lethargically oscillated in just a four-point range throughout the entire session. Still, the index logged a gain of 0.3%. As we have become accustomed to over the past month, the Dow Jones Industrials also rallied again, this time advancing 0.4%. A pullback in the Internet sector weighed on the Nasdaq Composite, which slipped 0.1% and closed near the bottom of its intraday range. The small-cap Russell 2000 also lost 0.1%, while the S&P Midcap 400 was unchanged.
Substantially lower volume in the markets helped explain the lackadaisical price action. Total volume in the NYSE was 15% lighter than the previous day’s level. Turnover in the Nasdaq receded 25%. In both exchanges, it was the lightest volume day in more than a month. Like the closing prices of the major stock market indexes, market internals were mixed. In the NYSE, advancing volume exceeded declining volume by a margin of 3 to 2. The Nasdaq, however, was negative by nearly the same ratio.
Thanks to merger and acquisition activity, Metals and Mining was the only major sector to gain more than one percent yesterday. The ETF that most closely tracks the sector, the StreetTRACKS Metals and Mining (XME), rallied 1.5% and finished at a new record high. As you can see on the chart below, XME bounced perfectly off support of its 20-day exponential moving average last week. As long as it holds above $64, XME should see another leg up in the coming weeks:
The Biotech Index ($BTK) has been consolidating nicely over the past two weeks and is another sector that should move higher in the coming weeks. The index dipped with the rest of the broad market on April 30, but the correction was orderly and it recovered quickly. A rally above the hourly downtrend line (illustrated below) should trigger a wave of buying that leads to a new multi-year high in the $BTK index:
As we illustrated with a “percentage change” chart a few weeks ago, the First Trust Biotech (FBT) and iShares Nasdaq Biotech (IBB) have been showing more relative strength than the popular Biotech HOLDR (BBH). Keep that in mind if you are buy any Biotech ETFs when the index resumes its uptrend. Always buy the leading ETF within a sector, not the laggard.
On the downside, retail remains the only sector that is showing significant weakness. The Retail Index ($RLX) is still consolidating near its April 30 low, stuck beneath resistance of its 20-day EMA. Just one retracement in the broad market should push the index back below its 50-day moving average.
Yesterday’s low-volume session did little to change the technical picture of the broad market. The Dow, and to a lesser extent the S&P 500, continued to chug along at the upper channel of its primary uptrend that we illustrated in yesterday’s newsletter. The Nasdaq declined modestly, but its loss was inconsequential because it did so on much lower than average volume. The light volatility and low turnover in the stock market could likely be attributed to the upcoming Fed meeting. This Wednesday afternoon, the Federal Reserve Board will announce its latest intentions on interest rates and economic policy. Understandably, institutional traders are probably going to remain on the sidelines until then. Given the positive expectations already built into the market, we expect the market to react to the Fed announcement with a lot of volatility and erratic price action. Consider waiting until the market has digested the upcoming Fed commentary before entering any new positions you may be stalking.
Today’s Watchlist:
There are no new setups in the pre-market today. We will probably avoid entering new positions until after Wednesday’s FOMC decision and comments on interest rates.
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 = + 0.48, unrealized P/L = + $240
XRT short (600 shares from May 4 entry) – sold short 42.90, stop 44.11, target 40.70, unrealized points = (0.06), unrealized P/L = ($36)
Closed positions (since last report):
-
(none)
Current equity exposure ($100,000 max. buying power):
- $46,266
Notes:
No changes to the open positions above.
Edited by Deron Wagner,
MTG Founder and
Head Trader