Global Markets Keeping Pace With Domestic Gains

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

After gapping higher on last Friday's open, stocks initially moved higher in the first hour of trading, but sellers stepped in at mid-day and sent the major indices back down to unchanged levels. The market quickly stabilized, trended sideways in the afternoon, then bounced modestly into the close. Both the S&P 500 and Dow Jones Industrial Average gained 0.2%, as the Nasdaq Composite climbed 0.3%. The small-cap Russell 2000 rallied 0.5% and the S&P Midcap 400 advanced 0.4%. Each of the broad-based stock market indexes closed just above the middle of their intraday ranges.

Turnover levels were mixed. Total volume in the Nasdaq increased by 3%, while volume in the NYSE came in 3% lighter than the previous day's level. In the NYSE, advancing volume exceeded declining volume by 3 to 2. The Nasdaq ratio was positive by 2 to 1.

Not only have the U.S. markets been on a tear, but stock markets all over the world remain in steady uptrends as well. The Vanguard FTSE All World ETF (VEU) is a great barometer of the global market trends. Further, this ETF is a great way to participate in a broadly diversified basket of stocks from countries all over the world. After consolidating for nearly three weeks, VEU gapped up to close last week at a new high:

With VEU just breaking out to a new high, it is buyable as long as it holds above support of its breakout level. Initially, consider a protective stop just below the May 3 low. A move back below that level would breach the pivot by a wide enough margin to consider the breakout as having failed. Assuming the breakout holds, a protective stop can be trailed just below support of the new hourly uptrend line.

Two weeks ago, we said the S&P 500 was likely to probe above its all-time high before seeing any type of substantial correction. The index retraced a little on April 30, but the correction was very short-lived, rallying back to a new high only two days later. With a historical closing high of 1,527, set in March of 2000, last week's closing price of 1,505 puts the S&P less than 1.5% below its historical closing high. On an intraday basis, the high is 1,552. The monthly chart of the S&P below shows the close proximity to its record high, which is likely to be tested in the coming weeks:

Ongoing strength of the blue chips helped the Dow Jones Industrials to build on its impressive winning streak last week. The index rallied 1.1% and gained in four of the week's five sessions. But most amazing of all is that the Dow has closed higher in 23 of the last 26 sessions, a feat not accomplished for 80 years! Strength in large cap stocks has been undeniable, and this institutional sector rotation into large caps is evidenced by the recent relative weakness in small caps. The Dow has been leading, while the Russell has been lagging. With a complete lack of overhead resistance levels, it's impossible to predict when the Dow will eventually take a break and pull back. However, it's a bit of an eye opener to look at the Dow's uptrending channel on the daily chart. We removed the moving averages below so that you can more easily see the uptrending channel:

As you can see, the Dow has been hugging the upper channel resistance of its trend channel for the past two weeks. While we don't know how long it will continue to do so, one thing remains certain -- new long entries at current levels do not carry a very positive risk/reward ratio. Obviously, one needs to be buying strong stocks and ETFs in a bull market, but the most profitable and lowest risk point to do so is when the major indices retrace down to support of their uptrending channels. Since the Dow has not touched its lower channel for nearly a month and has been riding the upper channel resistance for two weeks, we can't help but think that a correction at least down to the middle of its uptrending channel is bound to happen soon. When it does, we will be looking to enter new long positions that have been showing the most strength. Pharmaceuticals, Biotech, and Semiconductors top the list. The other major indices have a similar chart pattern, but the Dow remains the strongest broad-based index.

Open ETF positions:


Long GDX, short XRT (regular subscribers to The Wagner Daily receive detailed stop and target prices on open positions and detailed setup information on new ETF trade entry prices. Intraday e-mail alerts are also sent as needed.)







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. For a free trial to the full version of The Wagner Daily or to learn about Deron's other services, visit morpheustrading.com or send an e-mail to deron@morpheustrading.com .

<< My Home | TheMoneyBlogs Home

• It's Not Armageddon. . .
• Basic Materials Sector Forming Short-term Bottom
• Disappointed? Yes. Discouraged? No.
• Stop! Hammer Time!
• Japanese Yen ETF Setting Up For Buy Entry

• 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

• Trader X
• Neville's Financial Blog
• Jon Aquino's Mental Garden
• In The Money

• Weekly Recap: One For The Recordbooks
• Westclox 22692: A Necessary And Sufficient Alarm Clock
• How Much I Spent In 2007