Equities closed near the session highs on Monday amidst very light trade. Small and mid cap issues led the advance. The small-cap Russell 2000 (NYSE:IWM) and the S&P MidCap 400 posted impressive gains of 0.9% and 1.3% respectively. The Nasdaq (NASDAQ:QQQ), S&P 500 (NYSE:SPY) and Dow Jones Industrial Average (NYSE:DIA) all improved on the day but the gains were modest. The tech rich Nasdaq tacked on 0.6% while the blue chip DJIA and the S&P 500 advanced by 0.4%.
For the second time in as many days market internals ended the day mixed. Turnover dropped sharply on both major exchanges. Volume finished lower by 19.4% on the Nasdaq and by almost 25% on the NYSE. Still, advancing volume was greater than declining volume for the second straight day. The Advancing Volume to Declining Volume Ratio closed at 2.1 to 1 on the NYSE and 1.2 to 1 on the Nasdaq. Although positive, Monday’s move was far from impressive due to the complete absence of volume. The light volume clearly suggests a lack of institutional involvement in Monday’s advance.
Yesterday, via an intraday alert, we entered a long position in the iShares Silver Trust ETF (NYSE:SLV). After four vicious days of selling this ETF found support at its 61.8% Fibonacci retracement. Further, on Friday SLV formed a double bottom which provides a clear stop for this trade. Due to the volatility in SLV we chose to take a small position with a wider than normal stop. Full trade details are available to our subscribing members in the open position segment of the newsletter.
The PowerShares Dynamic Large Cap Value ETF (NYSE:PWV) demonstrated excellent relative strength during the recent selloff. While the S&P 500 was severely undercutting its 20-day EMA on May 5th, PWV remained well above the 20-day EMA. This ETF is now poised for a possible move higher. A move back above the two day high of $20.35 may present a buy entry trigger for PWV. We are placing PWV on the watchlist. Trade details are provided in the watchlist section of the newsletter.
Given yesterday’s volume contraction, Tuesday could very well decide the next significant move in the market. We continue to maintain a bullish bias but are still apt to take profits and cut losses quickly. The recent pullback in commodities is a keen reminder of what can occur when the trade becomes “loaded”…when the consensus becomes too bullish or too bearish.
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]
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