Expect Chop On The Last Day Of The Year

NOTE: Please click on the charts below to enlarge them if they do not appear clearly.

Stocks attempted to rebound from Thursday's "distribution day" by gapping higher on last Friday's open, but traders quickly sold into strength. After trading near unchanged levels throughout the morning, the major indices fell into negative territory at mid-day, but a modest rebound in the early afternoon pushed the broad market back towards the flat line. The Nasdaq Composite settled 0.1% lower, while the S&P 500 and Dow Jones Industrial Average eked out matching gains of 0.1%. The small-cap Russell 2000 and S&P Midcap 400 indices were lower by 0.2% and 0.1% respectively. All the main stock market indexes closed near the bottom third of their intraday ranges.

Total volume in the Nasdaq was 7% lighter than the previous day's level. Turnover in the NYSE increased by 5%. The slight changes in trading activity were rather irrelevant, as volume levels remained well below average ahead of the New Year's Day holiday. In both exchanges, declining volume marginally exceeded advancing volume.

Since breaking out above the upper boundary resistance of its "wedge" pattern on December 21, the StreetTRACKS Gold Trust (GLD) has rallied back to test its prior all-time high. It already set a new closing high last Friday, and is less than a point below its intraday high from November 8. On the daily chart of GLD below, notice how smoothly the ETF followed through to the upside after breaking out of the wedge pattern:

Although we did not buy GLD, we remain long the closely correlated Market Vectors Gold Miners ETF (GDX). Because it formerly showed relative weakness, GDX is still below its all-time high. However, it already broke out above its 7-week downtrend line and is now showing relative strength to the movement in GLD. Presently, GDX is showing a marked to market gain of just over one point since our December 26 entry, and we expect momentum to pick up further in the coming week.

Another commodity ETF testing its all-time high is the U.S. Oil Fund (USO), which loosely follows the price of crude oil. Though it formed a bearish candle on Friday, a rally above that day's high would be quite bullish and correspond to a fresh historical high:

With this type of pattern, be careful not to "jump the gun" and buy before the actual breakout to a new high. Doing so could easily lead to rapid loss if the breakout fails and a "double top" forms instead. However, we like the pattern for long entry on a breakout above the horizontal line shown above.

As per last week's analysis, stocks are likely to remain choppy in the short-term because the major indices are near pivotal areas of support/resistance. Expect chop and indecision until clear resolution presents itself in one direction or the other. Obviously, this goes doubly for today's session, ahead of tomorrow's New Year's Day holiday. Expect volume to slow to a crawl in the afternoon, as traders head out to make their preparations for tonight's fun events.

The U.S. markets will be closed for the New Year's Day holiday on January 1, 2008. As such, The Wagner Daily will not be published tomorrow, but regular publication will resume on Wednesday, January 2. Also, note that today is the last day to register to receive the "early bird" discount for the Live ETF Trading Seminar in Ft. Lauderdale, Florida on February 9, 2008. Wishing you and yours all the best in 2008!

Open ETF positions:


Long - GDX

Short - (none)




NOTE: Regular subscribers to The Wagner Daily receive daily updates on the open positions above, as well as new ETF trade setups, including trigger, stop, and target prices. Intraday e-mail alerts are also sent on as-needed basis.





Deron Wagner is the head trader of Morpheus Capital Hedge Fund and founder of Morpheus Trading Group (morpheustrading.com), which he launched in 2001. Wagner appears on his best-selling video, Sector Trading Strategies (Marketplace Books, June 2002), and is 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. He is also a frequent guest speaker at various trading and financial conferences around the world. Wagner is currently working on this third book, scheduled for publication in early 2008.





For a free trial to the full version of The Wagner Daily above, which includes detailed ETF trade setups and daily position updates, or to learn about our other newsletters, visit morpheustrading.com or send an e-mail to deron@morpheustrading.com.

<< My Home | TheMoneyBlogs Home

• Support Of The Year 2002 Lows "doing Its Thing"
• It's Not Armageddon. . .
• Basic Materials Sector Forming Short-term Bottom
• Disappointed? Yes. Discouraged? No.
• Stop! Hammer Time!

• October 2008
• September 2008
• August 2008
• July 2008
• June 2008
• May 2008
• April 2008
• March 2008
• February 2008
• January 2008
• December 2007
• November 2007
• October 2007
• September 2007
• August 2007
• July 2007
• June 2007
• May 2007
• April 2007
• March 2007
• February 2007

• PowerRate Your Favorite Stock Today!
• Morpheus Trading

• The Corner Office Blog
• UrbanDigs
• In The Money
• Newmark's Door
• The Family CEO

• Bought More Provident Today