OIH and GLD performing well

The stock market shook off early
weakness yesterday morning, enabling the major indices to post their third
consecutive day of gains. The Nasdaq Composite gapped 0.7% lower on
the open, but finished with a 0.4% gain. Both the S&P 500 and Dow Jones
Industrial Average also recovered from opening losses to close 0.2% higher.
Small cap stocks showed relative strength that helped the Russell 2000 advance
0.8%. The S&P Midcap 400 secured a similar gain of 0.6%. Despite the broad-based
gains, yesterday’s intraday action was a bit choppy and erratic. The S&P and
Nasdaq moved into positive territory two hours before the close, but whipped
around with several false breakdowns and breakouts in the first half of the day.

Turnover was higher in both exchanges yesterday, enabling both
the S&P and Nasdaq to register their second straight “accumulation days.” Total
volume in the NYSE increased by 6%, while volume in the Nasdaq was 2% greater
than the previous day’s level. After suffering several days of distribution last
week, it’s positive to see a few sessions of higher volume gains, albeit only
modestly increasing volume. In the Nasdaq, advancing volume exceeded declining
volume by a margin of 2.2 to 1. The NYSE ratio was positive by only 1.3 to 1.
Like the previous day, stronger market internals in the Nasdaq matched its
better gains as well.

Since we now have five open positions, let’s take an updated
technical look at each of them. Although it gave us a rough time for several
days, the Oil Service HOLDR
(
OIH |
Quote |
Chart |
News |
PowerRating) is now looking pretty good. It closed
yesterday above its prior high from October 26 and is presently showing an
unrealized gain of nearly 8 points (6.1%) since our re-entry on November 2:

On the chart above, notice that yesterday’s volume in OIH was
also pretty strong. Because ETFs are synthetic instruments that do not operate
on an auction system, high volume will not necessarily drive the price of an ETF
higher. It does, however, indicate that institutions were buying shares of it.
If you look at the individual stocks that comprise the Oil Service Index ($OSX),
you will also notice that many of them had better than average volume as well.
Because OIH closed above its prior high, we expect it to make a run at its
200-day moving average (the orange line) in today’s session. Our original profit
target is just beyond the 200-day MA (142.10), but we have trailed our stop to
just below the middle of yesterday’s range (137.29) in order to lock in profits
if the breakout fails.

The StreetTRACKS Gold Trust
(
GLD |
Quote |
Chart |
News |
PowerRating), which we began buying
on October 25, is our second most profitable open position:

As you may recall, we bought the first half of the position
when it popped back above its 20-day moving average. We subsequently bought the
second half of the position when it broke through its 200-day moving average on
October 30. More importantly, the breakout above the 200-day MA coincided with a
breakout above the “neckline” of the inverse “head and shoulders” chart pattern
we detected (see the

October 25 issue of The Wagner Daily. On November 3, we sold half of
our GLD position for a quick gain of more than 3 points, with the intention of
buying back all or part of those shares on the first correction. Specifically,
we were looking for a pullback down to the 10-day MA, a level that strong
trending stocks and ETFs will typically bounce off of. That anticipated
retracement happened yesterday, so we added to our position near the intraday
low, about 1.5 points below where we sold the first half of the position.
Because we sold partial shares into strength, kept the rest through the
pullback, then added to the position again, this is known as “trading around a
position.” Managing trades in this manner is a good way to maximize your profits
and minimize your risk, but it only works with stocks and ETFs that are showing
strong momentum. From here, we expect yesterday’s low to act as support, so we
have trailed our stop to just below the 200-day MA (the orange line). Our price
target on the full position remains the 64.45 area. Yesterday, the pullback
finally came, so we added to our position .

Going into yesterday’s session, we had two other open
positions: DB Commodity Index Trust
(
DBC |
Quote |
Chart |
News |
PowerRating) and iShares Cohen and Steers Real
Estate
(
ICF |
Quote |
Chart |
News |
PowerRating). We remain long DBC and short ICF, but both finished within
pennies of our original entry points. So far, not much to report on these two
positions. Our remaining open position is one that we just entered yesterday,
the U.S. Oil Fund
(
USO |
Quote |
Chart |
News |
PowerRating):

We originally discussed USO in the November 7 issue of The
Wagner Daily, where we illustrated how it was nearing the breakout above its
seven-week downtrend line. We began stalking USO for a potential long entry that
day, but only bought it into the close yesterday afternoon. Per a real-time
e-mail alert to subscribers, we explained that we liked the relative strength
and consolidation near the highs in the Oil Sector. Since it has been
consolidating in a tight range right at its downtrend line for the past three
days, we expected upside momentum to develop in crude oil in the overnight
session. Obviously, it remains to be seen whether or not this will happen, but
we feel our entry point provided us with a positive risk/reward ratio on the
trade. Again, we are NOT calling a bottom in crude oil or USO. Rather, we are
merely attempting to profit from a technical bounce from oversold conditions.
More than all the others, USO is intended to be only a short-term trade.

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 .