The Russell 2000 Index Surges Higher (IWM, DIA, SPY, IYR, EWT, INDEXRUSSELL:RUT)
Monday was a good day for Wall Street. Stocks gapped up at the open and never looked back. By the closing bell all five major indices closed more than 1% higher and near session highs. For a second consecutive day the small-cap Russell 2000 Index (INDEXRUSSELL:RUT) led the advance, as it claimed a 2.0% gain. The Nasdaq finished a close second as it improved by 1.8%. Both the S&P 500 (NYSEARCA:SPY) and the S&P MidCap 400 added 1.4%, while the Dow Jones Industrial Average (NYSEARCA:DIA) tacked on 1.2%. Of the 104 sectors that we track, only coal ended the day lower. Insurance, healthcare and heavy construction were the day’s big winners as each closed higher by 2.5% or more
Market internals were decidedly bullish on Monday. Volume on the Nasdaq was up by 14.0% and on the NYSE by 1.0%. Advancing volume overpowered declining volume by a ratio of 6.1 to 1 on the NYSE and 4.2 to 1 on the Nasdaq. Based on yesterday’s strong price action, higher volume and higher advancing volume, we would characterize the day as an accumulation day for both indices.
Yesterday, on a burst in volume, the iShares MSCI Taiwan Index Fund (NYSEARCA:EWT) undercut its 20-day MA and recovered to close at session highs. A move above the two day high of $13.54 could provide a buy entry trigger in this ETF. We are monitoring the setup closely for a possible long entry.
Since setting a swing high on March 19th, the iShares Dow Jones Real Estate Index Trust (NYSEARCA:IYR) has pulled back and held support at its 20-day EMA. On two of the last three sessions, IYR has undercut the 20-day EMA. This price action serves to “shake” weak hands out of the trade and sweep poorly placed stops. If IYR can find its way back above the three day high of $62.06, it could present a buying opportunity in this ETF.
The Russell 2000 (NYSEARCA:IWM) finally broke to a new 52-week high which bodes well for market bulls. We wouldn’t be surprised to now see money begin to flow out of large cap issues and into small issues. The Russell should lead the next leg higher.
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Deron Wagner is a professional hedge fund manager who founded Morpheus Trading Group, a swing trader education firm, in 2002. He is the author of the best-selling book, Trading ETFs: Gaining An Edge With Technical Analysis. His new book, Advanced Technical Analysis of ETFs, will be released in August 2012. Past television appearances include CNBC, ABC, and Yahoo! FinanceVision. Wagner is also a frequent guest speaker at various trading events around the world, and can be reached by sending e-mail to: firstname.lastname@example.org.