Stocks closed lower yesterday but well off the day’s lows. After a significant morning gap down and test of Tuesday’s lows, all of the major indices recovered to close in the upper half of their respective trading ranges. The Nasdaq and the S&P MidCap 400 both lost 0.4% yesterday, while the small-cap Russell 2000 fell 0.5%. The S&P 500 and the Dow Jones Industrial Average (NYSEARCA:DIA) showed the most relative weakness, as they slid 0.7% and 0.8% respectively.
Market internals ended the day mixed on the Nasdaq and bearish on the NYSE. Volume fell on the Nasdaq by 5.0% but rose on the NYSE by 3.6%. Declining volume easily topped advancing volume by a ratio of 2.1 to 1 on the NYSE but ended the day at 1 to 1 on the Nasdaq. Despite the recovery off its intraday lows, Tuesday’s negative price action and higher volume on the NYSE combined to result in a distribution day for this index.
Since mid April, the Market Vectors Vietnam ETF (NYSEARCA:VNM) has been setting a sequence of higher lows, as it has consolidated along its 20-day EMA. This is an excellent exhibition of relative strength since most ETFs have lost support of both their 20-day and 50-day moving averages during the most recent bout of selling. If the market posts a buy signal and VNM is able to maintain support at the 20-day EMA, it could offer a buying opportunity on a move above resistance near $21.30.
The ProShares UltraShort Oil and Gas ETF (NYSEARCA:DUG) reversed a long term downtrend starting in mid March by setting a sequence of higher highs and higher lows over the past two months. DUG could present a buying opportunity if it continues to consolidate near its present highs (forms a pennant), or on a pullback into support of its 20-day and/or 50-day moving averages. We will continue to monitor DUG for a potential long opportunity.
The market continues to exhibit weakness but all of the major indices managed to either hold or recover to close above Tuesday’s lows. We expect to see a bounce in the market over the next few days. The a big key to the market’s recovery is whether or not the major indices can hold the two day low and then post a significant accumulation day three or four days from now. However, if the market bounces into resistance on light volume, we will be looking to take on new short positions.