The major indices followed up Tuesday’s massive rally by finishing near the flat line and with mixed results. After showing early gains, stocks oscillated in a sideways to slightly lower range throughout the day. The Nasdaq Composite slipped 0.1%, the S&P 500 lost 0.2%, and the Dow Jones Industrial Average gave back 0.4%. Small and mid-cap stocks showed relative strength by building on the previous day’s gains. The Russell 2000 advanced 0.2% and the S&P Midcap 400 ticked 0.4% higher. The main stock market indexes finished near the middle of their relatively tight intraday ranges.
Total volume in the NYSE declined 11%, as the Nasdaq’s turnover came in 3% below the previous day’s level. It’s positive that lighter volume accompanied a session in which stocks digested their gains. Conversely, increased trading activity would have been a warning sign of bearish “churning” near the highs. In both the NYSE and Nasdaq, advancing volume was nearly on par with declining volume.
In yesterday’s commentary, we pointed out the bullish patterns in several international ETFs, as well as the relative strength in the iShares DJ Transportation (IYT). After yesterday’s action, a few more bullish patterns emerged in the domestic ETF market. One ETF setting up for a potential breakout is the Retail HOLDR (RTH), which is comprised of household retail names such as Wal-Mart, Home Depot, and Target. On both the daily and weekly chart, RTH is poised to move above key resistance levels. Let’s start with the daily chart:
On the chart above, notice that a rally above yesterday’s high will represent a breakout above both its 200-day moving average and a key band of horizontal price resistance. More importantly, a move above yesterday’s high would also correspond with a breakout above its primary downtrend that has been in place for nine months. This is illustrated on the longer-term weekly chart below. Note that moving averages have been removed so that the trendline can be more easily seen:
If RTH moves firmly above yesterday’s high, it will have broken out above pivotal resistance levels on both its daily and weekly charts. Such a rally would provide an ideal buy point. To guard against the possibility of a failed breakout, an initial protective stop could be placed just below yesterday’s low.
Solar energy stocks are seeing renewed buying interest, which has caused the alternative energy ETFs to perk up. If institutional money continues flowing into this sector, these ETFs could begin new primary uptrends. The PowerShares Clean Energy (PBW), for instance, just broke out above its prior high and 50-day MA. Despite a small decline in the S&P and Nasdaq yesterday, PBW showed great relative strength by ignoring the broad market and zooming 4% higher. The breakout above the 50-day MA (the teal line) is shown below:
Though less popular than PBW, one should also be aware of the MarketVectors Global Alternative Energy ETF (GEX). It just broke out above its 200-day MA and closed at a new multi-month high. It’s showing a bit of bullish divergence to PBW as well. The First Trust Clean Edge (QCLN) is another ticker to keep on your alternative energy radar.
Yesterday’s mild pullback in the S&P, Nasdaq, and Dow was no big deal. The major indices gave back very little of the previous day’s enormous gains, and they also dipped on declining volume. Due to Tuesday’s key technical breakouts, our intermediate-term bias remains bullish. However, it would not be surprising if stocks traded sideways for another day or two before building on their newfound strength.
Retail HOLDR (RTH)
Shares = 200
Trigger = above 96.89 (over yesterday’s high)
Stop = 94.23 (below yesterday’s low)
Target = 102.30
Dividend Date = n/a (stocks pay dividends individually)
Notes = See commentary above for explanation of this setup. Note that RTH, and all the HOLDRS, trade only in lots of 100 shares (no odd lots).
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):
IYT long (250 shares from March 25 entry) – bought 86.69, stop 85.89, target 92.30, unrealized points = + 2.72, unrealized P/L = + $680
INP long (200 shares from March 24 entry) – bought 66.26, stop 65.22, target 75.70, unrealized points = + 1.03, unrealized P/L = + $206
FXI long (125 shares from April 2 entry) – bought 143.15, stop 138.30, target 157.60, unrealized points = (1.00), unrealized P/L = ($125)
EWT long (700 shares from March 26 entry) – bought 16.60, stop 15.59, target new high (will trail stop), unrealized points = (0.47), unrealized P/L = ($329)
Closed positions (since last report):
Current equity exposure ($100,000 max. buying power):
The FXI setup triggered yesterday when it pulled back below the $143.20 level. No additional changes to the open positions.
Edited by Deron Wagner,
MTG Founder and