S&P Makes A Lot Of Noise, But Still In 'No Man's Land'

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

Continuing the trend of the previous two days, stocks whipped around in both directions before finishing near unchanged levels last Friday. A sharp sell-off late in the morning caused the S&P 500 to drop as much as 0.9%, but the index recovered to lose only 0.1%. Both the Nasdaq Composite and small-cap Russell 2000 indices gained 0.2%, while the S&P Midcap 400 edged 0.1% higher. The Dow Jones Industrial Average was unchanged. The market made a lot of noise throughout the session, but all the major indices closed near the middle of their intraday ranges and near the flat line. A tug-of-war between the bulls and bears has been taking place for the past three days.

Total volume in both the NYSE and Nasdaq was 5% above the previous day's levels. Although the Nasdaq technically advanced on higher volume, the minimal percentage of the gain prevented the index from registering a bullish "accumulation day." Conversely, a 0.1% loss in the S&P was not enough to label the session a "distribution day." Since the major stock market indexes finished near the middle of their intraday ranges, it is difficult to really know whether the bulls or bears had the upper hand. Market internals were mixed. In the NYSE, declining volume exceeded advancing volume by a margin of 1.3 to 1. The Nasdaq was positive by the same ratio.

Last week, we bought the StreetTRACKS Gold Trust (GLD) when it broke out and it's holding up okay after a brief shakeout on March 29. We like the way it bounced off support of its 50-day MA and still feel good about the prospects of the trade. In addition, we suggest keeping an eye on the iShares Silver Trust (SLV), which is similarly setting up for a breakout in the coming days. The main difference is that GLD has already broken out above its 50-day MA, but SLV is getting ready to do so:

In the March 30 issue of The Wagner Daily, we illustrated how the S&P, Nasdaq, and Dow were each stuck between support of their prior highs from March and resistance of their 50-day moving averages overhead. We mentioned that resolution in one direction or the other should soon take place, but it would be choppy until then. Unfortunately, last Friday's action was indeed erratic with no definitive outcome. The daily chart of the S&P 500 below illustrates how the index both probed below support and above resistance before closing nearly flat:

Because last Friday's intraday highs and lows in the major indices probed through both the key support and resistance levels, the new support and resistance levels have merely been expanded to match last Friday's trading ranges. Therefore, we simply need to wait for a clear break above the March 30 high or low in the S&P, Nasdaq, and Dow before taking any new action. Until that happens, expect more of the wild and whippy action that we saw in the latter half of last week.

Open ETF positions:

Long GLD, DXD, short IYR, FXI (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 .

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