Gold shining brightly

Stocks resumed their former pattern
of divergence Thursday
, as tech stocks continued to show relative
strength, but blue chips drifted lower. The Nasdaq Composite managed to finish
its choppy session with a 0.1% gain, but the S&P 500
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edged 0.2% lower.
Relative weakness was again found in the Dow Jones Industrial Average
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which slid 0.6%. The S&P Midcap 400
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was unchanged and the small-cap
Russell 2000 lost 0.2%. The S&P 500 and Dow Jones Industrials both finished in
the bottom third of their intraday ranges, while the Nasdaq closed in the middle
of its range.

A 1% decline in the total volume level of the NYSE prevented
the index from registering a bearish “distribution day.” Volume in the Nasdaq
also dropped off and was 9% lighter than the previous day’s level. Despite
Wednesday’s 11% increase in turnover, total volume in the NYSE has been below
average levels in each of the past nine sessions. Conversely, the Nasdaq’s
breakout to a new five-year high two days ago enabled turnover in that exchange
to rise above its 50-day average in each of the past two sessions. Mixed market
internals also confirmed yesterday’s price divergence. In the NYSE, declining
volume marginally exceeded advancing volume, while the opposite was true in the

Looking at this week’s leading sectors, you will notice see
that the Gold Index
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has been shining brightly ever since we pointed
out the sector’s breakout above its primary downtrend line in the March 24 issue
of The Wagner Daily. Within the past five sessions, the $GOX has advanced
a whopping 11.7% while most of the broad market has moved sideways. Even more
impressive has been the price of spot gold, which suddenly began showing
relative strength to the individual stocks. Corresponding to a new 19-year high
in the price of spot gold, the StreetTRACKS Gold Trust
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broke out to a
new all-time high yesterday:

The Oil Service HOLDR (OIH) has also been rallying steadily
higher over the past three days since breaking out of a one-month sideways range
from mid-February to mid-March. The ETF is obviously too extended to buy it at
current levels, but we would buy a pullback to near support of its 50-day moving

On the downside, the Utilities sector has been showing
relative weakness by trending lower while the broad market has been sideways to
slightly higher. This may present a short-selling opportunity in the Utilities
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, which closed at a new 4-month low yesterday:

Curiously, the broad-based indices that were showing the most
relative strength in the first half of March are now displaying the most
relative weakness. In the first half of the month, both the S&P 500 and Dow
Jones Industrial Average broke out to new multi-year highs and initially held
firm while the Nasdaq lagged behind and continued to trade in a sideways range.
But over the past week, we have seen definitive sector rotation out of the S&P
and Dow and back into the Nasdaq. Although the Nasdaq finished at a new 5-year
high the past two days, both the S&P and Dow are now in danger of falling below
pivotal support levels. The Dow closed yesterday below its 20-day moving average
for the first time since March 8 and will drop below support of its prior high
if it shows any further weakness today:

The S&P 500 has been acting a little better than the Dow this
week, but has been having trouble with resistance of its high at the 1,310
level. Looking at the daily chart, notice how the index tried, but failed to
break out to a new high yesterday:

Note that today is the last day of the month and the
first quarter of the calendar year. As such, don’t be surprised by erratic
movement in stocks that is caused by the usual end of quarter jockeying from
hedge and mutual funds. Its breakout to a new five-year high causes the Nasdaq
to be the safest place to be long right now, while caution is warranted in the
blue chips. While Wednesday’s action was positive overall, it appears we still
may not be “out of the woods” with regard to moving full speed ahead on the buy
side of the broad market.

Open ETF positions:

We are currently flat (regular subscribers to

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receive detailed stop and target prices on open
positions and detailed setup information on new ETF trade entry prices. Intraday
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Deron Wagner is the head trader of Morpheus Capital
Hedge Fund and founder of Morpheus Trading Group (,
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 or send an e-mail
to .