Stocks closed higher across the board on Monday but on very light trade. Despite Monday’s advance, the broad market has now been caught in a trading range for approximately one week. Higher beta stocks led the advance as the small-cap Russell 2000 and the S&P MidCap 400 tacked on solid gains of 1.2% and 0.8% respectively. The Dow Jones Industrial Average claimed a 0.6% improvement while the S&P 500 and the Nasdaq both advanced by 0.5%.
Monday’s internals significantly muted the day’s positive price action. Volume was down dramatically across the board. On the Nasdaq turnover plummeted by 32% and on the NYSE it fell by 44%. Advancing volume outpaced declining volume by 2.3 to 1 on the NYSE and 1.8 to 1 on the Nasdaq. The complete absence of volume suggests that institutions did not participate in the rally and therefore we would not consider yesterday to be an accumulation day on Wall Street.
During the recent pullback in the market the Pharmaceutical HOLDRS ETF (PPH) has exhibited significant relative strength to the broad market. While market pulled back to its 200-day moving average, PPH barely undercut its 50-day moving average. A volume fueled move back above the two day high of $70.58 could provide a short term buying opportunity in this ETF. Although we are not eager to enter the long side of the market, the recent strength demonstrated by PPH makes it a relatively low risk play.
The iShares MSCI Thailand Investable Market Index ETF (THD) is currently testing support of its long term trendline dating back to March 2009. Over the past two weeks THD has been consolidating along its trendline for the most extended period since the rally in this ETF began in March 2009. On June 14th THD gapped up and appeared to be headed higher but was quickly driven back to the trendline. If THD is unable to rally off the current level and reverse above its intermediated downtrend line, its next move could be a return to support at the previous swing low of $56.85.
In our opinion, the market is at a crossroads and contemplating its next big move. The lighter day over day trade is partially understandable given that Friday was a triple options expiration day. However, yesterday’s volume was well below its 50-day moving average on both major exchanges. As discussed, the poor volume performance suggests an absence of institutional involvement on the long side of the market. If the market cannot find sound footing over the next several sessions the odds will begin to favor another leg down. For the moment we believe it is prudent to maintain minimal exposure to the market.
There are no new official setups this morning. We will send an Intraday 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
- No changes to our open position.
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Edited by Deron Wagner,
MTG Founder and