Here’s my HHH entry

January 12, 2006
Deron Wagner

The major indices spent most of yesterday’s session in a narrow, sideways range, but the bulls arrived during the final ninety minutes of trading and once again enabled stocks to close in positive territory. Both the S&P 500 and Dow Jones Industrial Average gained 0.3%, while the Nasdaq Composite advanced 0.5%. It was the Nasdaq’s seventh straight day of gains, a perfect record so far in the new year. Both the small-cap Russell 2000 and mid-cap S&P 400 indices held firm at their record highs, closing unchanged and 0.1% higher respectively.

Turnover rose across the board yesterday, adding another bullish “accumulation day” to the count for both the S&P and Nasdaq. Total volume in the Nasdaq firmly increased by 19%, while volume in the NYSE was 1% higher than the previous day’s level. Since the new year began, more than half of the “up” days have been on higher volume, while there have been no “down” days to speak of. Yesterday’s action tells us that institutional buying interest remains alive and well, although we would not be surprised to see some profit taking in the short-term.

One sector ETF we are stalking on the long side is
(
HHH |
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PowerRating) (Internet HOLDR). Unlike a handful of sector ETFs in which we are waiting for a price correction, we are waiting for a breakout above horizontal price resistance to buy HHH. Beginning with the daily chart, you will notice that HHH bounced perfectly off support of its 50-day moving average on January 3:

Although the bounce off the 50-day MA is bullish, the daily chart looks a bit choppy and indecisive over the past few weeks. Therefore, zooming out to the longer-term weekly chart removes much of the “noise” from the daily chart and presents a clear “big picture” of what is really happening in the sector:

As you can see, HHH tested resistance of the November 2005 high earlier this week, but was unable to break out. However, it has been consolidating nicely over the past eight weeks, near its 52-week high, and will probably make another attempt at breaking out soon. We like HHH for long entry over this week’s high of 70.85. The November high was 70.64, so a rally over the 71 level should generate some upside momentum. But don’t forget that buying any breakout candidate before the actual breakout can be quite risky. Patience is required for a setup like this.

Looking at the major broad-market indices, the support levels we analyzed in yesterday’s Wagner Daily remain valid going into today. On the upside, there remains no overhead resistance to be concerned with, but the broad market is becoming a bit extended in the short-term. We’re not in the business of calling tops, as it is much more profitable to follow the trends, but it is equally important to maintain discipline and be patient if stalking any stocks or ETFs for long entry. Now is certainly NOT the time to begin chasing the rally if you missed it. Keep that shopping list handy, but note that the start of quarterly earnings season next week may complicate things a bit.

Open ETF positions:

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 .

Here’s my HHH entry

BUY THE FEAR, SELL THE GREED

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