Ishares Nasdaq Biotech (ibb) Ready To Go Next

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

Stocks staged a remarkable, broad-based rally yesterday, causing the S&P, Dow, and Nasdaq to rocket to new highs. The major indices gapped higher on the open, trended steadily higher throughout the morning session, then went into overdrive in the final hour of trading. By day's end, the S&P 500 and Nasdaq Composite had zoomed 1.9% higher, while the blue-chip Dow Jones Industrial Average scored a whopping 2.1% gain. The small-cap Russell 2000 and S&P Midcap 400 indexes climbed 1.8% and 1.6% respectively. All of the key stock market indexes closed at their best levels of the session.

Heavier turnover supported yesterday's gains, enabling both the S&P and Nasdaq to register a bullish "accumulation day." Total volume in the NYSE increased 9% over the previous day's level, while volume in the Nasdaq was 10% higher. Advancing volume in the NYSE exceeded declining volume by a strong margin of nearly 7 to 1. The Nasdaq's adv/dec volume ratio was firmly positive at 11 to 2. Since yesterday's impressive gains also coincided with higher volume in both exchanges, our recent concerns over the market's string of lighter volume gains have been largely assuaged. Both the S&P and Nasdaq have had just two days of higher volume selling (aka "distribution days") over the past several weeks.

One of the top-performing sectors yesterday was the Gold and Silver Index ($XAU), which surged 3.3% to its highest level of the past ten months. As the weekly chart below illustrates, the index also broke out above a lengthy period of sideways price consolidation. If the $XAU rallies above the September 2006 high of 153.15, there will be minimal resistance preventing the index from testing its all-time high:

The strength in gold stocks enabled follow-through in the "bull flag" chart formation of GDX that we illustrated yesterday. GDX closed just above its July 9 high of $41.24, the top of the "bull flag," positioning itself for further upside in the coming days. We remain long GDX from our July 10 entry, and may add to the winning position if it continues to act well and exhibit relative strength.

In addition to GDX, our two other open positions performed well and are both showing gains. Yesterday, the iPath Barclays India Index (INP) triggered our long entry when it opened above the July 10 high. It subsequently trended higher to finish at an all-time high. After testing support of its breakout level the prior day, the CurrencyShares Canadian Dolar (FXC) also gapped up to close at a record high. With no overhead resistance levels to hold them down, we will be trailing stops higher in both ETFs to maximize profits and protect gains as they move higher.

Going into today, we are again stalking the iShares Nasdaq Biotech Fund (IBB) for a potential long entry. At the beginning of the week, we illustrated how IBB was consolidating in a tight range, at support of its 200-day MA. On July 9, it probed above the high of the consolidation, but we scratched the trade intraday because it failed to hold into the close. Yesterday, however, IBB closed well above the high of its recent range. It also closed right at the convergence of its 50-day MA and intermediate-term downtrend line. A rally above yesterday's high should trigger substantial upside momentum that could send IBB back to its prior weekly high from May. As such, we plan to buy IBB today if it breaks out convincingly above yesterday's high:

Given the precarious daily chart the S&P 500 was exhibiting, the strength of yesterday's rally was striking. However, remember that the situation over in the Nasdaq was quite different. Both the Nasdaq Composite and Nasdaq 100 indices were holding firmly in new high territory, well above their recent breakout levels. More importantly, the absence of relative weakness of market-leading stocks such as Apple (AAPL), Amazon (AMZN), Research in Motion (RIMM), and Baidu.com (BIDU) was a bullish sign for the overall market. When leaders stand their ground, market corrections are usually short-lived. Obviously, the balance of power clearly remains with the bulls. Nevertheless, astute traders will avoid blind complacency on the long side because the market has been full of surprises lately.

Open ETF positions:


Long - INP, GDX, FXC

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 .

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