There’s only 1 sector I like right now

Stocks chopped around in a narrow, indecisive range before finishing the day near unchanged levels yesterday. The S&P 500 traded in a lazy six-point range and eventually closed at the flat line. Action in the Nasdaq Composite and small-cap Russell 2000 was equally uneventful, as both indices were also unchanged. The Dow Jones Industrials showed relative weakness and fell 0.3%, but the mid-cap S&P 400 bounced 0.3% higher. A moderate retracement in the Pharmaceutcial
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Total volume in the NYSE declined by 13%, while volume in the Nasdaq was the same as the previous day’s level. Declining volume exceeded advancing volume by a narrow margin in both exchanges. Not surprisingly, we can expect turnover to continue to decline as we approach the Christmas holiday. The week between Christmas and New Year’s Day is typically just as lethargic.

Each of the major indices drifted between negative and positive territory yesterday, but finished near the middle of their intraday ranges and on par with the opening prices. This caused “doji star” candlestick patterns to form on the daily charts. We have circled the “doji star” on the chart of the Nasdaq Composite below:

When a “doji star” forms at the top of a strong uptrend or the bottom of a steady downtrend, it often precedes a trend reversal. However, when the pattern forms while the indices are in the middle of a range, it simply indicates indecision. In this case, neither the bulls nor bears won yesterday’s tug-of-war, so the broad market finished where it started. Obviously, days like yesterday are not ideal for swing traders who profit from high volatility and steady trends.

The daily charts of the major indices continue to show mixed signals, but remember that volume never lies. As you know, the market has been hit with a number of bearish “distribution days” over the past few weeks and these days indicate institutional selling into recent strength. Unless we begin to see some days of higher volume gains (“accumulation days”), we would err slightly to the short side. However, your best bet is to lay low with a mostly cash position right now.

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!

Open ETF positions:

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 .