Broad based averages slid lower during the first fifteen minutes of trading yesterday to undercut the prior session’s low. The opening weakness created a little shakeout action, as stocks reversed higher after 10 am and pushed to new intraday highs by late morning. Stocks drifted lower through lunch, but recovered nicely during the final ninety minutes of trading and ran to new intraday highs in to the close. The Nasdaq Composite and Dow closed up 0.5%, while the S&P 500 gained 0.4%. Small and mid-cap stocks lagged, as the Russell 2000 and S&P mid-cap 400 both gained 0.1%. The Nasdaq 100 clearly outperformed, closing 1% higher.
Though yesterday’s close was bullish, the light volume on both exchanges failed to confirm the price action. Volume sank 9% on the NYSE and 3% on the Nasdaq. Market internals also failed to confirm, as advancing volume equalled declining volume on the NYSE and registered a 1.7 to 1 reading on the Nasdaq. So we have a bit of a divergence between the price action and the internals, which suggests some caution here. However, broad based indices are bouncing off support of the range lows, so odds favor an upward bias over the next few days.
Over the past two days we have seen relative strength in the Nasdaq Composite, especially in the Nasdaq 100 ETF (QQQQ), as evidenced by the 15-minute chart below (the red lines represent the opening 15-minute range high):
The relative strength is easy to spot when using the opening 15-minute range high as a reference point. Traders should focus on Nasdaq stocks to take advantage of the strength if the market is to push higher from here.
Since the Nasdaq is showing relative strength, it then makes sense to locate the strongest sector within the Nasdaq, which has been the Semiconductor Index. The chart below details yesterday’s Intraday Buy Alert into the Semiconductor HOLDR (SMH):
In Tuesday’s report we discussed the possibility of SMH not pulling back to our trigger price, so when the price action gapped down yesterday on the open and held, we monitored the action for a buy entry over the opening range high. Aside from SMH, the iShares Biotech (IBB) is also setting up nicely on the daily chart and is buyable over yesterday’s high (we are already long).
Though we suggest that traders focus on the strength is in the Nasdaq, the iShares Transportation (IYT) is still buyable over yesterday’s high.
In the short-term, i Shares Japan (EWJ) has shown great relative strength vs. the SPY. The hourly chart below compares the percent return over the past ten days:
Moving to the daily chart, we see that EWJ recently gapped above the downtrend line in early Decemeber. After stalling out on 12/4, the price action has settled in to a tight trading range over the past few days and is buyable over the three-day high.
As for a longer-term look at relative strength we’ll use the weekly chart to compare the percent return of iShares Brazil (EWZ) vs. the SPY:
Intermediate-term trend followers looking to take advantage of long-term relative strength may establish a buy entry over the two-day high in EWZ. Though the false breakout action in early December appears to be ugly, these false breakouts tend to wash out all the weak longs. Once the price action firms up, the buyers should return to lift the price to new highs.
There are no new official setups this morning. We will promptly send an Intraday Buy Alert if any new trades are made.
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. Please review the Wagner Daily Subscriber Guide for important, automatic rules on trigger and stop prices.
- Per Intraday Trade Alert, we bought SMH over the hourly downtrend line.
- Reminder to subscribers – Intraday Trade Alerts to your e-mail and/or mobile phone are normally only sent to indicate a CHANGE to the pre-market plan that is detailed in each morning’s Wagner Daily. We sometimes send a courtesy alert just to confirm action that was already detailed in the pre-market newsletter, but this is not always the case. If no alert is received to the contrary, one should always assume we’re honoring all stops and trigger prices listed in each morning’s Wagner Daily. But whenever CHANGES to the pre-market stops or trigger prices are necessary, alerts are sent on an AS-NEEDED basis. Just a reminder of the purpose of Intraday Trade Alerts.
- For those of you whose ISPs occasionally deliver your e-mail with a delay, make sure you’re signed up to receive our free text message alerts sent to your mobile phone. This provides a great way to have redundancy on all Intraday Trade Alerts. Send your request to [email protected] if not already set up for this value-added feature we provide to subscribers.
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Edited by Deron Wagner,
MTG Founder and