Buying interest is heating up in these 2 sectors
After shaking off mild
weakness in the morning, stocks moved higher across the board Wednesday,
enabling the S&P 500
(
SPX |
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PowerRating) to close above resistance of its multi-week
trading range and at a fresh five-year high. The S&P 500 gained 0.4%, while
strength in the tech sectors helped lead the Nasdaq Composite
(
COMP |
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PowerRating) to a
0.6% gain and another new five-year high as well. The S&P Midcap 400 Index
advanced 0.7%, the small-cap Russell 2000 rallied 0.5%, and the Dow Jones
Industrial Average closed 0.3% higher.
Total volume in the NYSE was 6% higher than the
previous day’s level, but volume in the Nasdaq was 1% lighter. The S&P’s
gain on higher volume was enough to register a bullish “accumulation
day” in the index, but turnover in that exchange still came in below its
average level. Curiously, volume in the NYSE has exceeded average levels in only
one of the past thirteen sessions. Although the Nasdaq’s volume was fractionally
lighter, market internals were equally strong in both exchanges. Both the NYSE
and Nasdaq saw advancing volume exceed declining volume by approximately 2 to 1.
Among the strongest sectors yesterday was the
Semiconductor Index
(
SOX |
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PowerRating), which surged 2.8% higher and broke out of a
choppy, sideways range that has been in effect for the past three weeks. The
$SOX still must contend with overhead resistance of its 50-day moving average,
less than 1% above yesterday’s close, but the index may be waking up:
If the $SOX busts through its 50-day moving
average, it may present ideal entry points in ETFs such as iShares Semiconductor
(
IGW |
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PowerRating) and the Semiconductor HOLDR
(
SMH |
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PowerRating). Of the two, IGW is closer to a new high
and therefore has less overhead. But the real performer of the Semiconductor
ETFs is the PowerShares Semiconductor
(
PSI |
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PowerRating). Although the $SOX itself remains
nearly 6% below its 52-week high, relative strength in PSI enabled that ETF to
break out to a new all-time high yesterday. The dynamic manner in which the
PowerShares family of ETFs determines its underlying stocks within each sector
often enables those ETFs to show relative strength to the actual sector indexes.
Note, however, that the PowerShares have not yet received much popularity
because the entire family was launched less than a year ago.
While the tech sectors such as Semiconductors and
Internets have begun to regain buying interest, the Biotech Index
(
BTK |
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PowerRating)
continues to drift lower. Yesterday’s fractional loss in the index means the $BTK
continues to consolidate near the lows of its recent trading range. If the index
sees any further selling pressure, it will drop below support at the 698 area,
which could accelerate downside momentum. Looking at the daily chart, you will
see that the index has been in a steady downtrend since the high of February 27
of this year. Overhead resistance of both the 20 and 50-day moving averages is
further contributing to weakness in the index:
Of the Biotech ETFs, we feel the Biotech HOLDR
(
BBH |
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PowerRating)
has the most bearish looking chart because it is the only one that is below its
200-day MA. BBH is clinging to support of its prior low at the 190 area, but we
could see a nice selloff if it falls below that. For that reason, we remain
short BBH from the 192.50 area.
As for the broad market, it is starting to look
better as the indices grind up to new highs. However, we prefer to focus our
attention on specific industry sectors with relative strength or weakness
instead of the broad-based ETFs. Doing so provides a better risk/reward and less
chance of getting whipsawed out of our positions.
Open ETF positions:
Short BBH (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
.