US equities ended the session higher on increased trade. All five major indices closed modestly higher with small and mid cap stocks leading the way. The S&P MidCap 400 added 0.8% while the small-cap Russell 2000 (NYSE:IWM) improved by 0.7%. The blue chip DJIA (NYSE:DIA) and Nasdaq (NASDAQ:QQQ) posted gains of 0.5% and 0.3% respectively. The S&P 500 (NYSE:SPY) closed fractionally higher. It is noteworthy that the NYSE ended the session lower by 0.1%.
Wednesday’s moderately higher price action was not backed by strong internals. Volume increased on the session by 5.7% on the Nasdaq and by 2.4% on the Dow. However, the ratio of advancing volume to declining volume closed the day at 1 to 1 on both major exchanges. In the absence of strong internals we would not consider yesterday to be an accumulation day for the broad market. Instead we would classify yesterday as a consolidation day for the market. Following a seven day run we would expect to see some “discussion” between bears and bulls.
The PowerShares Dynamic Food and Beverage ETF (NYSE:PBJ) demonstrated excellent relative strength during the recent selloff in the market. As the broad market tested the 200-day MA, PBJ only undercut its 50-day MA. PBJ is now consolidating near its all time high. Ideally we would like to see PBJ consolidate for several days to several weeks in order to provide a clear setup. A breakout from the current three day base could easily fail. We will be monitoring this ETF closely for a potential long trigger.
The First Trust Amex Biotechnology ETF (NYSE:FBT) has reclaimed its 50-day MA and has now been consolidating for the past five sessions. A volume fueled move back above yesterday’s high of $44.63 or a pullback into support near the 20-day and 50-day MAs could provide buying opportunities in this ETF.
The broad market continued to consolidate near the three day highs yesterday. Although many technical indicators may be providing overbought readings, the longer the market consolidates, the more likely it becomes that we will move higher.
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]