Continued strength in the tech arena
launched the Nasdaq Composite to a new six-year high, pulling the other major
indices higher as well. The Nasdaq Composite cruised 1% higher, while
both the S&P 500 and Dow Jones Industrial Average gained 0.6%. The small-cap
Russell 2000 gained 1.2%, moving back above its 50-day moving average in the
process, and the S&P Midcap 400 rallied 1.1%. A wave of selling in the afternoon
caused the major indices to finish off their highs, but still within the upper
third of their intraday ranges.
Volume was higher across the board, enabling both the S&P and
Nasdaq to register bullish "accumulation days." Total volume in the NYSE was 4%
higher than the previous day's level, while the Nasdaq's volume increased by 7%.
The third straight day of higher volume gains in the Nasdaq confirms that
institutions have been supporting the index, particularly the tech stocks.
Advancing volume exceeded declining volume by more than 2 to 1 in both
exchanges, but the NYSE volume spread was positive by as much as 6 to 1 earlier
in the day.
The Biotech HOLDR (BBH | Quote | Chart | News | PowerRating) has been pretty dormant over the
past year, but is now coming back to life. Yesterday, it surged 2.5% higher and
closed above resistance of its prior high and closed at a new 52-week high.
Similar to how the Semiconductor HOLDR (SMH | Quote | Chart | News | PowerRating) broke out above its one-year
downtrend line yesterday, BBH broke out above its long-term downtrend line that
has been in place since the high of November 2005:
The breakout in BBH was rather significant because of how long
the downtrend line has been in place. As such, buying it on any pullback to the
prior downtrend line provides you with a low-risk entry point in the position. A
third ETF that is in the process of breaking a one-year downtrend line is the
Internet HOLDR (HHH | Quote | Chart | News | PowerRating). It popped back above its 50-day MA yesterday and
closed just above its downtrend line from the high of January 2006. If it holds,
we would expect HHH to at least recover 50% of its peak to trough loss. That
corresponds to a price target of around 61 on HHH:
While sectors like Biotech and Semiconductors have been
rallying sharply over the past week, former leading industries such as Energy
and Mining have been falling apart. Clearly, recent market action has been
indicative of institutional sector rotation into industries that were stagnant
throughout most of last year. Though the S&P and Dow both posted decent gains
yesterday, money flow into the Nasdaq is much stronger. The breakouts in SMH,
BBH, and HHH are proof of the divergence. For now, the most favorable odds for
new long positions are within the Nasdaq sectors.
NOTE: The U.S. stock markets will be closed on Monday,
January 15 in observance of Martin Luther King Day. As such, The Wagner Daily
will not be published that day, but regular publication will resume on Tuesday.
Open ETF positions:
Long SMH, SDS (regular subscribers to
The Wagner Daily
receive detailed stop and target prices on open positions and detailed setup
information on new ETF trade entry prices. Intraday e-mail alerts are also sent
as needed.)
Deron Wagner is the head trader
of Morpheus Capital Hedge Fund and founder of Morpheus Trading Group (morpheustrading.com),
which he launched in 2001. Wagner appears on his best-selling video, Sector
Trading Strategies (Marketplace Books, June 2002), and is co-author of both The
Long-Term Day Trader (Career Press, April 2000) and The After-Hours Trader
(McGraw Hill, August 2000). Past television appearances include CNBC, ABC, and
Yahoo! FinanceVision. He is also a frequent guest speaker at various trading and
financial conferences around the world. For a free trial to the full version of
The Wagner Daily or to learn about Deron's other services, visit
morpheustrading.com or send an e-mail to
deron@morpheustrading.com .
