Stocks closed higher on Friday as volume faded in the pre-holiday session. The major indices all ended the session in the black. The small-cap Russell 2000 (NYSE:IWM) led the move as it posted a 0.7% gain. The S&P MidCap 400 and the Nasdaq (NASDAQ:QQQ) rose by 0.6% and 0.5% respectively. The Dow Jones Industrial Average (NYSE:DIA) and the S&P 500 (NYSE:SPY) were the day’s laggards as they posted meager gains of 0.3% and 0.4% respectively.
Friday’s session brought mixed internals. Volume dropped significantly across the board. Turnover on the Nasdaq slid by 12.8% while it plummeted by almost 20% on the Big Board. However advancing volume outpaced declining volume by a healthy 3.0 to 1 on the NYSE and by 2.7 to 1 on the Nasdaq. The weak pre-Memorial Day volume clearly suggests a lack of institutional participation in Friday’s action. Consequently Friday would not be considered an accumulation day for the market.
Since its breakout move on May 5th, the PowerShares DB Crude Oil Double Short ETF (NYSE:DTO) has been consolidating for the past 16 sessions above the 20-day EMA. Yesterday this ETF formed a bullish “inside” candle as volume fell dramatically. This combination of price and volume action is generally considered bullish. A move back above the two day high of $47.10 could provide a long trigger for DTO. We are placing DTO on the watchlist. Trade details are available to our subscribing members in the watchlist section of the newsletter.
Yesterday the iShares MSCI Japan Index ETF (NYSE:EWJ) formed a bearish reversal candle on expanding volume. A move back below Friday’s low of $10.06 could present a short entry trigger for this ETF.
The Pharmaceutical HOLDRS ETF (NYSE:PPH) has maintained excellent relative strength over the past month as it has held support at the 20-day EMA while the broad market has drifted below the 50-day MA. For the past five sessions PPH has been consolidating in a tight range along its 20-day EMA. Yesterday, for the second time in as many days, PPH undercut the 20-day EMA, held support and closed near session highs. A volume fueled move back above $71.35 could offer a but trigger for PPH. We are placing PPH on the watchlist. Trade details are available for our clients in the watchlist segment of the newsletter.
The major indices are at key resistance levels. The DJIA is currently exhibiting the most relative weakness as it has been unable to reclaim its 20-day EMA. It is noteworthy that the Dow Jones Transportation Average formed a clear reversal candle on Friday. All of this information combined suggests that the broad market may be near a turning point.
Deron Wagner is the Founder and Head Portfolio Manager of Morpheus Trading Group, a capital management and trader education firm launched in 2001. Wagner is the author of the best-selling book, Trading ETFs: Gaining An Edge With Technical Analysis (Bloomberg Press, August 2008), and also appears in the popular DVD video, Sector Trading Strategies (Marketplace Books, June 2002). He is also 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. Wagner is a frequent guest speaker at various trading and financial conferences around the world, and can be reached by sending e-mail to: [email protected]