Gapping sharply higher on the open, the main stock market indexes briefly kicked off the second quarter of the year above their sideways ranges and at fresh 52-week highs, but the initial buying enthusiasm quickly faded. Traders began selling into strength less than an hour after the open, causing stocks to reverse and drift lower throughout the afternoon. A wave of buying in the final hour of trading enabled the major indices to finish in positive territory, but it was still a shaky day overall. The S&P 500 rose 0.7% and the Dow Jones Industrial Average advanced 0.6%. The Nasdaq Composite, off 0.5% at its intraday low, eked out a closing gain of 0.2%. The small-cap Russell 2000 and S&P Midcap 400 indices climbed 0.8% and 0.9% respectively. Finishing near the middle of their intraday trading ranges, the main stock market indexes formed “doji star” candlestick patterns, indicative of confusion at their highs. Nevertheless, all the major indices registered another (shortened) week of gains.
Total volume in the NYSE eased 20% ahead of the holiday weekend, while volume in the Nasdaq ticked 1% higher. Considering the indecisive nature of the broad market last Thursday, slower trade in the NYSE was positive. However, the Nasdaq barely dodged the label of a bearish “distribution day.” A closer look at the intraday volume pattern shows turnover in the Nasdaq picked up as the index was selling off, then receded as the index recovered into the close. That’s the opposite of a healthy intraday volume pattern. Still, instances of institutional selling in recent weeks have been sparse.
Although the major indices finished at or near their 52-week highs last week, the main stock market indexes have not yet broken out above their sideways trading ranges of the past several weeks. Instead, they continue to consolidate in choppy, sideways ranges, “correcting by time.” But even though bullish momentum has temporarily slowed down, the broad market has not yet exhibited any significant signs of an impending correction. As such, we’ll be monitoring the major indices closely this week, in anticipation of convincing breakouts to new 52-week highs. Of the broad-based ETFs, iShares S&P MIdcap SPDR (MDY) may show the most relative strength in the event of a breakout. Mid-caps showed the most leadership during the market’s last leg up, and that may become the case again:
On the chart above, notice the clearly defined breakout level of MDY. Short-term momentum traders may find a buying opportunity in a breakout above that resistance level. However, a tight stop is recommended, just below the breakout level, to protect against the rather decent possibility of a failed breakout to new highs.
Most industry sector ETFs showed a lack of conviction last week. It was difficult to find any interesting patterns, as many ETFs just moved sideways. However, notable relative strength and bullish momentum was found in the international ETFs. Specifically, emerging markets ETFs moved well, outperforming the gains of our domestic markets by a wide margin. The iShares Xinhua China 25 Index (FXI), which we bought in The Wagner Daily on March 26, zoomed 8% higher for the week. Last Thursday alone, FXI rallied 2.8%. Although the Chinese ETFs were showing relative weakness to the U.S. markets for about five months, the cycle seems to have definitively changed. Now, Chinese ETFs are clearly showing relative strength again, and we’re positioned to take advantage of it:
It wasn’t only China that took off last week. Emerging Markets ETFs such as Russia (RSX), South Africa (EZA), and South Korea (EWY) all zoomed to fresh 52-week highs. One of the more interesting, but lesser known, breakouts in the emerging markets was in the Wisdom Tree Emerging Markets High-Yielding Equity Index (DEM). The unique, yield-focused portfolio has enabled DEM to break out to a new 52-week high ahead of other popular, diversified emerging markets ETFs such as iShares Emerging Markets Index (EEM). Since the prior resistance level should now act as support, a pullback to the area of last Thursday’s breakout level in DEM may be worthy of consideration:
Within the domestic markets, we anticipate a resumption of relative strength in the financial sector when/if the major indices break out. As per our most recent commentary, we bought iShares U.S. Broker-Dealers Index (IAI) when it gapped up on April 1. Crude Oil and Energy ETFs rallied sharply last week, and we may see follow-through this week as well, but we generally prefer buying that sector on a pullback, rather than a breakout. Finally, iShares Silver Trust (SLV) is perking up, and we may take a closer look at that ETF within the next several days.
There are no new setups in the pre-market today, as we now have five open positions. We’ll focus on managing these positions for maximum profitability and minimal risk this week.
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 our April 1 issue, IAI triggered for buy entry on last Thursday’s open. No other changes to open positions at this time.
- Although BRF is indeed an international ETF, it continues to show relative weakness to most others. For example, it’s still well below its March highs. As such, holding same stop on BRF for now.
- 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 Head Trader