The major indices capped a very strong week with a relatively flat session last Friday. After brushing off a worse than expected unemployment report in the morning, stocks briefly rallied above their near-term consolidations, but drifted back down to close the day near unchanged levels. The S&P 500 edged 0.1% higher, while the Dow Jones Industrial Average slipped by the same percentage. The Nasdaq Composite gained 0.3%. Although the small-cap Russell 2000 was flat, the S&P Midcap 400 scored its fifth straight day of gains by climbing another 0.4%. The main stock market indexes finished the day near the middle of their intraday ranges, but near their best levels of the week.
Total volume in the NYSE was 2% lighter than the previous day’s level, as the Nasdaq’s volume similarly declined 1%. Not surprisingly, market internals were basically flat. Since the stock market has been consolidating in a tight range, near its recent highs, for the past three days, it’s positive that turnover has declined in each of those three sessions. As long as the market’s next significant “up” day occurs on higher volume, the overall price to volume relationship will remain bullish. Price action, as well as volume patterns, have been very positive since the major indices broke out above key resistance levels on April 1. With such a tight trading range near the recent highs, we anticipate another leg higher within the next several days.
After the April 1 breakout, we suggested the stock market has now entered into a new intermediate-term uptrend that could last a month or two before the long-term downtrends begin exerting a lot of selling pressure. Now that the April 1 breakout has proven to be legitimate, not just a fluke, let’s take a look at the longer-term weekly charts to gather a realistic view of how far the major indices might rally before facing significant resistance. We’ll begin with a weekly chart of the benchmark S&P 500 Index. Moving averages have been removed so the weekly downtrend line can be more easily seen:
There are two significant resistance levels the S&P 500 will need to contend with. In the near-term, watch for horizontal price resistance at the 1,396 level (the dashed horizontal blue line). If the S&P overcomes that level, it will subsequently run into major resistance of its long-term downtrend line that began with the October 2007 high. Barring an unexpected sell-off in the near-term, our plan is to remain cautiously bullish on the stock market until the S&P 500 nears the weekly downtrend line shown above. At that point, we will seek to unload long positions and begin initiating new short positions. Until the market proves otherwise, one must assume the firmly established long-term downtrend line will remain intact, sending the S&P back down when it runs into it. Obviously, we would not be looking to enter new short positions if the S&P miraculously blasts through that downtrend line. Next, let’s assess the weekly charts of the Nasdaq Composite and Dow Jones Industrial Average:
The weekly charts of the Nasdaq and Dow are similar to the S&P 500 chart. All three have horizontal price resistance from their respective February 2008 highs, with resistance of their six-month downtrend lines a little higher up. We suggest setting price alerts on your trading software to notify you when both any of these three indexes begin to test their February highs. If they break out above those levels, the next area to set price alerts is the weekly downtrend lines. Obviously, the longer it takes for stocks to move higher in the near-term, the more the downtrend lines will close in on the prices of the major indices. As always, we’ll keep subscribers informed of our trading plan as the main stock market indexes approach key resistance of their weekly downtrend lines.
Regarding individual ETFs, most of the ones we’ve pointed out over the past week (SLX, PBW, XME, IYT, EWW, FXI) continue to show great relative strength. Market Vectors Steel (SLX) surged to a new all-time high last Friday. We first brought SLX to your attention after it broke out above its one-month downtrend line at the beginning of last week. Despite a flat market, the PowerShares Clean Energy (PBW) rose another 3% last Friday. The iShares Mexico Index (EWW) is forming a bullish consolidation that could launch it to a new high in the near future. Along with the Retail HOLDR (RTH), we’re stalking EWW for potential long entry this week.
Retail HOLDR (RTH)
Shares = 200
Trigger = above 95.27 (over last Friday’s high and hourly downtrend line)
Stop = 92.78 (below yesterday’s low)
Target = 102.30
Dividend Date = n/a (stocks pay dividends individually)
Notes = This setup from April 3 did not yet trigger, but remains on our watchlist going into today. Note the new trigger and stop prices. See commentary in the April 3 issue of The Wagner Daily 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 = + 2.40, unrealized P/L = + $600
FXI long (125 shares from April 2 entry) – bought 143.15, stop 138.30, target 157.60, unrealized points = + 3.45, unrealized P/L = + $431
INP long (200 shares from March 24 entry) – bought 66.26, stop 65.22, target 75.70, unrealized points = (0.51), unrealized P/L = ($102)
EWT long (700 shares from March 26 entry) – bought 16.60, stop 15.59, target new high (will trail stop), unrealized points = (0.41), unrealized P/L = ($287)
Closed positions (since last report):
Current equity exposure ($100,000 max. buying power):
The RTH setup did not yet trigger, but remains on our watchlist going into today. No changes to our open positions, though we expect to trail stops higher over the next few days.
Edited by Deron Wagner,
MTG Founder and