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Morpheus TradingMajor Market and ETF Trading |
Nasdaq Gonna Save The S&P?
As anticipated, volume dropped ahead of Wednesday's Independence Day holiday, but it wasn't a flat session. The second half of 2007 got off to a strong start, as each of the major indices posted strong gains. Both the S&P 500 and Nasdaq Composite rallied 1.1%, while the Dow Jones Industrial Average ticked 0.9% higher. The small-cap Russell 2000 and S&P Midcap 400 indices were higher by 1.4% and 1.3% respectively. Nearly all of the market's gains occurred in the first hour of trading. Stocks subsequently traded in a narrow, sideways range before finishing near their intraday highs.
The only negative of yesterday's solid results was the lack of institutional buying support. Total volume in the NYSE receded 17%, while volume in the Nasdaq came in 15% below the previous day's level. Volume in both exchanges was well below average levels. A decent surge in turnover would have confirmed the bullish advance, but it's not surprising that trading was light ahead of today's shortened session and tomorrow's holiday. Market internals in the S&P and Dow were the strongest we've seen in a while. Advancing volume in the NYSE exceeded declining volume by a margin of more than 5 to 1. The Nasdaq ratio was positive by 5 to 2.
In yesterday's commentary, we said that "If the Nasdaq manages to leap to a new closing high this week, above the 2,626 level, it will probably pull the discombobulated S&P back above its 50-day MA." That's exactly what happened yesterday. The Nasdaq Composite's close of 2,632 was still below the intraday high of June 20, but it marked a fresh multi-year closing high. After five straight failed attempts to do so, the S&P closed back above its 50-day MA. Still, the index remains 1.3% below its high, so we're not "out of the woods" yet. As we've been saying nearly every day for the past several weeks, the best and lowest risk buying opportunities clearly remain in the Nasdaq.
With the market closing three hours early today, there probably won't be much happening beyond the first hour. Therefore, we'll wait until Thursday, after the holiday has passed, to re-assess which industry sectors are showing the best chart patterns and relative strength. In the meantime, let's keep an eye on the S&P to make sure it holds above its 50-day MA for more than a day. The Nasdaq 100 Index Tracking Stock (QQQQ) may be in play on the long side if its breakout holds into Thursday's session.
Open ETF positions:
Long - (none)
Short - EWO, KCE, XLE
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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