Precious Metals On A Comeback

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

Stocks followed up Wednesday's rally in typical fashion, as they oscillated in a tight, sideways range near the previous day's highs. Quietly digesting their gains, the major indices finished with mixed results and near the flat line. The S&P 500 eked out a 0.1% gain, but the Nasdaq Composite slipped 0.4%. The Dow Jones Industrial Average was unchanged. Small and mid-cap stocks retraced a bit, though they also rallied the most the previous day. The Russell 2000 and S&P Midcap 400 indices lost 0.7% and 0.4% respectively. The main stock market indexes closed near the upper third of their relatively narrow intraday ranges.

As we like to see on bullish consolidation days, turnover declined in both exchanges. Total volume in the NYSE was 10% below the previous day's level, while volume in the Nasdaq similarly receded 12%. Higher volume would have indicated bearish "churning" that results from selling into strength. Instead, the bears rested in their dens while the bulls waited in their pens. Advancing volume was on par with declining volume in both the NYSE and Nasdaq.

Two of the strongest ETFs in the first quarter of this year were StreetTRACKS Gold Trust (GLD) and iShares Silver Trust (SLV). They eventually corrected significantly in mid-March, dropping below their 50-day MAs in just a few days. But since then, they've stabilized and may be setting up to resume their bullishness. This is illustrated on the daily chart of iShares Silver Trust (SLV) below.

On April 16, SLV moved back above its 20-day EMA and tested resistance of its 50-day MA. SLV closed slightly lower yesterday, but is still within striking distance of taking out its 50-day MA. If it does so, it will also breakout above a key level of horizontal price resistance (the dashed horizontal line on the chart above). As such, we're stalking SLV for a potential buy entry today. If it manages to close firmly above yesterday's high, a test of its March high (which is also the all-time high) should follow shortly thereafter. GLD has a similar chart pattern, but SLV has been showing slightly more relative strength than GLD throughout the correction.

Yesterday, we received a not-so-subtle reminder of the caution that is required during quarterly corporate earnings season. Leading solar energy company SunPower Corp. (SPWR) announced news in the afternoon that their third quarter revenue growth would be flat. Wall Street did not take kindly to the news, as SPWR dropped from $94 to $84 in just one hour. Since SPWR is one of the leading stocks in the sector, the afternoon plunge also had a negative effect on other solar energy stocks. Of course, this also pressured our long position in the PowerShares Clean Energy Fund (PBW), which swiftly fell to its previous day's low. Because of the news, we made a judgment call to sell PBW and secure a small gain, rather than risking a complete reversal back to our entry point. Though we had higher expectations for the trade, this was a reminder of the need to be alert and pro-active when smack in the middle of earnings season.

After yesterday's close, Internet behemoth Google, Inc. (GOOG) dazzled traders with their latest earnings score card. To the surprise of many, they handily beat expectations, sending the stock fifteen percent higher in after hours trading. Not surprisingly, this also sparked a bullish after hours reaction in the Nasdaq futures market. Assuming the futures markets hold onto their pre-market gaps, the Nasdaq 100 is poised to open nearly 2% above yesterday's closing price. The S&P is also poised for a significant upside gap. Strength on the open should cause the major indices to test their pivotal resistance levels we discussed in yesterday's commentary. Again, expect a surge of upside momentum if the main stock market indexes are able to breakout above their respective bands of horizontal price resistance.

The broad market's recovery off the March lows has been primarily led by industries such as steel, oil, agriculture, transportation, and alternative energy. Meanwhile, technology-related sectors have generally lagged behind, but we feel this may soon change. Better than expected earnings results from Intel, IBM, and Google this week has led to positive reactions in their stock prices. This should soon spread to other leading tech stocks as well. Remember that institutional money flow is constantly at work, rotating into sectors that mutual funds, hedge funds, and other "big money" players feel may present a positive risk-reward ratio. In the coming days, we'll be watching for the tell-tale signs of institutional accumulation in the tech arena. As always, we'll let you know if we find anything interesting and tradeable.

Open ETF positions:

Long - INP, EWW

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 Trade Alerts are also sent via e-mail and/or mobile phone text message 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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