Gold and Biotech are the sectors to watch

Stocks followed-through with their second consecutive day of gains, as each of the major indices also closed at their intraday highs for the first time in nearly two weeks. The S&P 500 gained 0.4%, the Dow Jones Industrials 0.5%, and the Nasdaq Composite 0.7%. The S&P and Dow finished just below their highs of the previous day, while the Nasdaq surpassed its prior day’s high. Both the small-cap Russell 2000 and mid-cap S&P 400 indices kept pace with the broad market and advanced 0.6%. Yesterday’s steady uptrend was a welcome change from the market’s recent indecision that has been filled with intraday reversals.

Not surprisingly, turnover dropped off in both exchanges. Total volume in the NYSE came in 13% lighter, while volume in the Nasdaq was 7% lower than the previous day’s level. Yesterday’s broad market price action was positive, but lower overall volume levels failed to confirm that institutions were behind the move. Institutional support is always important because institutions account for approximately two-thirds of all daily trading activity. We micro-analyze volume levels every day because changes in turnover levels are the footprints of institutional activity. When a rally is driven purely by retail buying, it does not take a lot of institutional selling to undo the gains. Being that today is the last session before Christmas Day, we expect volume levels to drop off even more.

The Gold Mining Index
(
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(
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relative weakness to the GOX index. While many individual mining stocks set new highs yesterday, GLD
still remains 5% below its record closing high that was set on December 12. If
you compare the daily charts of the GOX and GLD, you will see that GLD showed
relative strength to and set new highs ahead of the GOX in the first half of the month. It appears the individual mining stocks are now playing “catch up” to the prior move in spot gold. The miners usually, but not always, mirror the price of spot gold (and GLD). As mentioned yesterday, we are skeptical of trusting any breakout to a new high during this low-volume holiday period, so it will be interesting to see whether or not the gold stocks continue higher without consolidating a bit longer.

The Biotech Index
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As you can see on the chart above, the BTK index had been correcting since its November 22 high, but it rallied above its daily downtrend line yesterday. The index now appears ready to resume its upward march after the holidays have passed.
(
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behind the BTK index itself, but it is beginning to look better. Along with Gold, the Biotechs should be on your
watch list for the beginning of January.

As always, we will be providing the usual technical analysis and market commentary during the holiday period, but entering new positions at this time is not advisable. Overtrading is easy to do in a light volume environment, and it only leads to churning your trading account. If you are currently flat, relax and take some time off. The market will certainly be here when you are ready to return, and remaining in cash during this time period is likely to save you money. If, however, you are already in positions that you like, simply set your good-til-canceled (GTC) stop orders and cruise into the end of the year as well.

Note that the U.S. equities markets will be closed on Monday, December 26. As such, The Wagner Daily will not be published that day, but regular publication will resume on December 27. Happy Holidays to you and your family!

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Short
(
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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 .