Stocks ended the session mixed but reversed to close near session highs, for the second day in a row. The Nasdaq showed relative weakness, as it was the only one of the major indices to close lower. The tech-rich index fell 0.4% on the day. The S&P 500 eked out a 0.1% gain, while the small cap Russell 2000 added 0.2%. Both the S&P MidCap 400 and the Dow Jones Industrial Average tacked on 0.3%.
Market internals were also mixed on Thursday. Volume dropped on the Nasdaq by 9.8% and on the NYSE by 11.3%. However, advancing volume edged out declining volume on the NYSE by a factor of 1.3 to 1, while declining volume held the upper hand on the Nasdaq by the same factor of 1.3 to 1. It was not a session indicative of institutional trading activity.
Over the past five sessions, the Direxion Semiconductor 3x Bear ETF (NYSEARCA:SOXS), which we recently traded for a 12% gain on a 3-day hold, has held support above its 10-day MA while trading in a tight, 4-point range. Now, a volume-driven move above the five-day high of $50.00 could present a buying opportunity in this inversely correlated “short ETF.” However, we would ideally prefer to see an “undercut” of the five-day low prior to buying $SOXS. Such “undercuts” serve to shake the “weak hands” out of the trade, while at the same time sweeping poorly placed stops. This ultimately increases the likelihood of a profitable trade.
Overall, yesterday’s market action was a tug of war between bulls and bears. Market bulls eventually gained the upper hand by day’s end. If the broad market can rally above the three-day high, the major indices would likely be headed for resistancee of their respective 20-day exponential moving averages. As mentoned several times in recent days, such a bounce could provide low-risk swing trading short setups with a positive reward/risk ratio. Yet, the market has been significantly struggling to gain its footing in an attempt to move higher. We don’t intend on taking new positions until we get the next definitive signal from the market. Nevertheless, we will be monitoring $SOXS for potential re-entry as a swing trade, and will notify subscribers of The Wagner Daily, the stock report with our best daily stock picks, if we buy $SOXS in our model trading portfolio.