Watch these 3 stocks today
Stocks oscillated in a sideways range throughout last Friday’s pre-holiday session and finished the day near the flat line. The S&P 500 eked out a 0.1% gain, while the Nasdaq Composite, Dow Jones Industrials, and mid-cap S&P 400 indices were each unchanged. The small-cap Russell 2000 maintained its relative strength this month, as the index managed a 0.2% gain. Overall, it was a bullish week for the broad market. Both the Russell 2000 and S&P 400 indices wrapped up the week less than 1% below their all-time highs, advancing 1.2% and 0.5% respectively. The Nasdaq Composite gained 0.5%, the S&P 500 0.2%, and the Dow was unchanged. While last week’s gains were not large, more important was that the major indices held firmly to their substantial gains of the prior week.
As the bulls like to see on a day of consolidation, turnover declined in both exchanges last Friday. Total volume in the NYSE fell by 7%, while volume in the Nasdaq was 13% lower than the previous day’s level. Just like when the broad market corrected last Thursday, the bears did not seize the opportunity to aggressively sell into strength near the highs. So far, the mild correction of the past several days has shown a slight pause in buying activity, but there have been no signs of institutional selling. Since the month began, a majority of the “up” days have been on higher volume, indicating institutional accumulation, while the only “down” day of the past two weeks has been on lighter volume.
In the first Wagner Daily issue of the new year, we illustrated how the S&P 500 was entering 2006 at a pivotal support/resistance level on its long-term monthly chart. Specifically, the index had finished last year right at the 61.8% Fibonacci retracement from its March 2000 high down to the October 2002 low. As such, we anticipated that 2006 would be a volatile year because the S&P would “make it or break it” by either breaking out firmly above that key pivotal level or by reversing lower and resuming its long-term downtrend from the year 2000 high.
Although only two weeks into the new year, the S&P 500 has broken out above that 61.8% Fibonacci retracement level and, thus far, is holding firmly. The monthly chart of the S&P 500 below illustrates this:
Needless to say, 2006 will likely be a very strong year in the broad market IF the S&P holds above the 1,253 level. However, we would like to see a monthly close above that price level in order to confirm the breakout above Fibonacci resistance. With two weeks remaining in the first month of the breakout, it is too early to confirm a breakout on the monthly chart. Still, overall odds certainly favor the long side of the market in the intermediate-term.
As for the short-term, continue to watch how the S&P reacts on any retracement down to its prior highs from December. Key short-term support should be found at convergence of the prior closing high from December (1,272) and the 20-day moving average (1,271). The blue horizontal line on the chart below illustrates support that would represent a low-risk buying opportunity for new long positions in the S&P:
Be aware that quarterly corporate earnings season kicks into gear this week. Some important earnings reports this week are:
As always, both upside and downside surprises can easily impact the technical picture of the markets. Therefore, you may consider reducing share size on any new positions you enter throughout earnings season. It is also highly advisable to keep on top of earnings dates that can move the markets. There are many web sites that provide you with free earnings calendars, but we like the free Yahoo! Finance site.
Open ETF positions:
Long PPH, long DIA (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 .