Streettracks Gold Trust (gld) Bounces Off The 50-day Ma

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

Stocks followed through on the previous day's bullish reversal by scoring another session of broad-based gains, but volume tapered off in both exchanges. The major indices gapped higher on the open, trended upwards throughout most of the day, then drifted off their highs in the final ninety minutes. The Nasdaq Composite gained 1.0%, while both the S&P 500 and Dow Jones Industrial Average advanced 0.6%. Small-caps outperformed for a change, enabling the Russell 2000 to rally 1.5%. The S&P Midcap 400 was higher by 1.1%. All the major indices closed in the upper third of their intraday ranges, though not at their highs like the prior day.

Lower turnover across the board indicated a lack of firm institutional buying interest behind yesterday's gains. Total volume in the NYSE was 5% lighter than the previous day's level, while volume in the Nasdaq declined by 11%. Nevertheless, the Nasdaq's volume still exceeded its 50-day average. NYSE volume was slightly below average. Market internals were strong. In both exchanges, advancing volume exceeded declining volume by more than 4 to 1.

Curiously, the best-performing sector yesterday was Gold. The Gold and Silver Index ($XAU) raced 2.7% higher, causing the gold-related ETFs to tag along as well. The two main gold-related ETFs we follow are the StreetTRACKS Gold Trust (GLD) and the Market Vectors Gold Miners (GDX). Though they both have the word "gold" in their names, the two ETFs bear little similarity. GLD mirrors the price of the spot gold commodity at approximately 1/10 the price of one ounce of gold. GDX, however, is comprised of a basket of individual gold mining stocks. One might assume that changes in the price of gold directly determine the trend of the mining stocks, but that is not always the case. Yesterday was one such exception in which there was great divergence between the gold commodity and the gold stocks. This can easily be compared by looking at the price changes in GLD versus GDX.

As you may recall, we recently sold GLD for a decent profit when it began to correct off its mid-April high. That correction has been healthy and modest, enabling GLD to touch support of its 50-day MA yesterday:

As you can see, GLD bounced perfectly off its 50-day MA, giving the initial appearance that its current uptrend remains strong. Because GLD gapped down on the open, its intraday rally still fell short of enabling it to close in positive territory. It lost just 3 cents yesterday. Conversely, the gold mining stocks performed quite well. GDX gained 2.7% yesterday, matching the advance in the $XAU index. Obviously, there is a pretty strong divergence right now between gold and the mining stocks. Unfortunately, the trend of GDX has been choppier than GLD, but just its relative strength may make it a better bet than GLD. Notice that GDX actually gapped down only slightly, then surged to a strong gain:

Our long setup in the Semiconductor HOLDR (SMH) triggered yesterday morning, but we ditched it for a small loss a few minutes later. While the Nasdaq was rallying sharply, the $SOX index was lagging. Further, SMH initially hit our trigger price by just a penny, so we didn't want to risk a full stop loss when the entry point was only marginally achieved. SMH moved a bit higher later in the day, but fell back into the close. It finished the day just six cents above our intended entry point of 37.05. We will continue to watch the performance of SMH today, as we will consider re-entering if it acts well. On the downside, notice that the Retail Index ($RLX) barely eked out a gain yesterday, confirming its relative weakness we pointed out yesterday morning.

Open ETF positions:


We are currently flat. (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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