4 Sectors I like on the long side
Stocks began the week in an uneventful fashion, as the major indices traded in a narrow and sideways range throughout the entire session before finishing near unchanged levels. The S&P 500 and Nasdaq Composite both declined 0.1%, while the Dow Jones Industrials inched 0.1% higher. The S&P Midcap 400 Index was unchanged, but small cap stocks showed relative weakness, causing the Russell 2000 Index to lose 0.3%. Although the intraday action was lethargic, a quiet day of consolidation after the market’s recent gains is a bullish sign. Conversely, nearly every rally throughout September and October was instantly met by selling that promptly erased the gains.
Turnover in yesterday’s session was mixed. Total volume in the NYSE rose by 14%, but volume in the Nasdaq was 2% lighter than the previous day’s level. Because the S&P closed lower and on higher volume, the index technically had a bearish “distribution day” yesterday. However, it’s difficult to classify a narrow-range day with a 0.1% loss as institutional selling, especially given that the Dow actually closed fractionally positive. The Nasdaq and small cap Russell declined on lighter volume yesterday, which is a positive sign as well. Declining volume marginally exceeded advancing volume in the NYSE, but it was the opposite scenario in the Nasdaq.
Because the major indices closed near the flat line yesterday, the key short-term support and resistance levels did not really change. The Dow has rallied up to resistance of its prior highs from July and August of this year, so keep a close eye on that level in the coming days. The red horizontal line on the weekly chart below illustrates the resistance:
If the Dow can firmly close above the horizontal price resistance over the 10,720 level, it will present an opportunity for long entry in DIA (Dow Jones Industrials). However, we do not recommend buying the first breakout because the Dow is more likely to break out above that resistance level, then correct down to or just below the breakout level. The retracement provides the lower risk entry point than buying the breakout in this case.
The Nasdaq 100 Index (and QQQQ) is sitting at a 52-week high and trading sideways. This, of course, is bullish and should pull the rest of the broad market with it. The S&P 500 is holding up well, but is not “out of the woods” yet. The August 3 closing high of 1,245 is a major resistance level that could provide a convenient excuse for a correction in the broad market. We’ll take a more detailed look at individual industry sectors and the broad market when the technical picture changes. For now, we like Biotechs, Semiconductors, Financials, and Gold sectors long. We are long
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BBH |
Quote |
Chart |
News |
PowerRating) (half a position) and
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GLD |
Quote |
Chart |
News |
PowerRating).
Open ETF positions:
Long small BBH, long GLD (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 .