Stocks gapped higher on last Friday morning’s open, but subsequently drifted lower throughout most of the day. A bounce in the final hour of trading lifted several of the indices back into positive territory, causing the market to finish with mixed results. The S&P 500 gained 0.3% and the Dow Jones Industrial Average advanced 0.4%, but the Nasdaq Composite slipped 0.2%. The small-cap Russell 2000 lost 0.6%, as the S&P Midcap 400 eked out a 0.1% gain. All the main stock market indexes closed just below the middle of their intraday ranges.
Total volume in the NYSE declined 9%, while volume in the Nasdaq similarly receded 5%. The lower turnover enabled the Nasdaq to dodge what would have been its second “distribution day” of the week. Trading in the NYSE has remained below its 50-day average level every day since April 1. Nasdaq volume has been more robust lately, as volume has exceeded average levels in each of the past three days. This points to greater institutional demand in the technology arena at the present time. Advancing volume in the NYSE exceeded declining volume by just 3 to 2. The adv/dec volume ratio in the Nasdaq was flat.
One ETF we’re monitoring for potential purchase this week is the iShares Nasdaq Biotech Fund (IBB). Though biotechs have been stagnant for quite a while, we’re beginning to see signs of rotation back into the sector. Last Friday, IBB gapped up to open above the high of a four-week base of consolidation, touching its 200-day MA for the first time since mid-January. Like the broad market, it drifted lower throughout the day and finished within its prior band of price consolidation. Still, we’re watching it this week for a potential breakout. A rally above last Friday’s high of $80.08 would cause IBB to break out above key resistance of its 200-day MA and lengthy base of price consolidation. The daily chart of IBB is shown below:
Although not tech-related, the utilities sector has also begun to show relative strength. The S&P Utilities SPDR (XLU), for example, outperformed the S&P and Dow by rallying 1.6% last Friday. XLU has also confirmed the breakout above its 200-day MA, which had been acting like a magnet for several weeks. We’ll consider buying XLU on a rally above last week’s high, which would push XLU firmly above an area of horizontal price resistance. This is shown on the daily chart below:
In last Friday morning’s commentary, we illustrated how each of the major indices were testing resistance of their primary downtrend lines that have been in place for the past seven months. We then went on to say that, “Lacking subjective opinion and calling it simply as the charts present themselves, this is still a countertrend bounce within the context of a dominant bear market. Nimble short-term traders can and should take advantage of the strength while it lasts, but please don’t be complacent. . .tight, disciplined stops and quicker profit taking is the name of the game.” As long as the market holds up okay, we’ll take advantage of ETF setups on the long side; hence the heads-up in IBB and XLU. Nevertheless, we remain cognizant of the not-so-positive “big picture” and are ready to switch sides at a moment’s notice.
iShares Nasdaq Biotech (IBB)
Shares = 300
Trigger = 80.21 (above last Friday’s high)
Stop = 78.22 (below last Friday’s low)
Target = 85.40 (area of resistance of Dec. 2007 high)
Dividend Date =June 2008
Notes = See commentary above for explanation of the setup.
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):
UUP long (1,300 shares from April 25 entry) – bought 22.68 (avg.), stop 22.39, target 23.72, unrealized points = + 0.24, unrealized P/L = + $312
Closed positions (since last report):
Current equity exposure ($100,000 max. buying power):
We’ve raised the stop slightly on UUP.
Edited by Deron Wagner,
MTG Founder and