Watch small and mid cap stocks today
Stocks continued to build on their recent gains
yesterday, as the Dow set a new all-time high for the third
consecutive day. The Nasdaq again showed relative strength by advancing 0.7%,
the S&P 500 gained 0.2%, and the Dow crept higher by 0.1%. Small and mid-cap
stocks made significant advances, enabling the Russell 2000 to gain 1.3% and the
S&P Midcap 400 to rally 1.2%. Our long position in the Biotech HOLDR zoomed 1.5%
higher, while the short positions in the Semiconductor HOLDR
(
SMH |
Quote |
Chart |
News |
PowerRating) and
Utilities HOLDR
(
UTH |
Quote |
Chart |
News |
PowerRating) both moved lower. As we have been discussing, being
simultaneously positioned on both sides of the market can be profitable,
regardless of market conditions. The main element is just to ensure that you are
long the ETFs with the most relative strength and short those with relative
weakness to the broad market.
Total
volume in the NYSE fell by 6%, while volume in the Nasdaq was 12% lower than the
previous day’s level. Even though the major indices did not gain on higher
volume, the overall price to volume relationship over the past week has remained
healthy overall. In both exchanges, advancing volume exceeded declining volume
by a margin of nearly 2 to 1.
The S&P
Midcap 400 Index, which we have been stalking for a potential move out of its
multi-month range, appears to have finally broken out to the upside. Not only
did it bust above the highs of its consolidation, but it also closed yesterday
above its 200-day MA:
Because
of the length of its prior consolidation, we are comfortable with buying the
first pullback to the prior high in the S&P Midcap SPDR
(
MDY |
Quote |
Chart |
News |
PowerRating) or other ETF
that mirrors the S&P Midcap 400.
The
Biotech Index ($BTK) outperformed with a 1.2% gain yesterday, pulling our long
position in the Biotech HOLDR
(
BBH |
Quote |
Chart |
News |
PowerRating) along with it. As you can see on the
chart below, BBH closed at a fresh 52-week high:
Although
not apparent on the chart above, BBH closed at its highest price level since
March 21. Since all of the major components are acting well, we plan to trail a
stop to protect the gain in BBH, as opposed to setting an actual “price target.”
This is discussed more in the
“exchange traded funds” section of today’s Investors Business Daily
newspaper.
Quarterly earnings season unofficially starts next week. Monday is slow, but
next Tuesday will see earnings from Dow component Alcoa Aluminum
(
AA |
Quote |
Chart |
News |
PowerRating) and
Nasdaq giant Genentech
(
DNA |
Quote |
Chart |
News |
PowerRating). More companies will be reporting their
earnings immediately thereafter. Unfortunately, the quarterly earnings season
often brings many surprises that can adversely affect clear technical chart
patterns, but the broad market remains healthy. In particular, we like how the
Nasdaq and Russell 2000 are both making valiant efforts to “catch up” with the
Dow and S&P strength.
Open
ETF positions:
Long BBH, XHB, short SMH, UTH (regular subscribers to
The Wagner Daily receive detailed stop and target prices on open
positions and detailed setup information on new ETF trade entry prices. Intraday
e-mail alerts are also sent as needed.)
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 .