Stocks concluded their sixth straight week of losses with a session of
volatile and whippy trading that left most of the major indices substantially
lower last Friday. After trending south throughout the morning, momentum
reversed higher in the afternoon, briefly pushing the main stock market indexes
into positive territory, but the bears sold into strength in the final hour of
trading. The Nasdaq Composite fell 0.8%, as both the S&P 500 and Dow Jones
Industrial Average slid 1.1%. Although the S&P Midcap 400 Index lost 0.4%,
the small-cap Russell 2000 bucked the bearishness by gaining 0.7%. This
was advantageous to our position in Ultra Russell 2000 ProShares (UWM), which we
bought the previous day. With the exception of the Russell, all the major
indices closed in the middle of their intraday ranges.
Volume ticked higher across the board, causing both the S&P 500 and
Nasdaq Composite to register a bearish "distribution day." Total volume in the
NYSE rose 14%, while volume in the Nasdaq increased 4% above the previous day's
level. The higher volume selling negated the preceding day's session of higher
volume gains that hinted at institutional selling. However, consider that stocks
briefly traded into positive territory before selling off into the final hour
last Friday. As such, the higher volume losses may not have been as negative as
one might initially assume. In both the NYSE and Nasdaq, declining volume
exceeded advancing volume by a margin of approximately 5 to 2.
Going into the new week, there are several bullish ETF setups we like for
potential long entry. The Biotech HOLDR (BBH), which we have been long since
July 2, continues to show great relative strength to the broad market. This is
because institutions are now accumulating shares of BBH, as evidenced by the
fact that higher than average volume accompanied last week's rally to its
highest level of the year. BBH is also poised to break out above resistance of a
multi-year downtrend line on the monthly chart that began with the high of
November 2005. That breakout will occur on a rally above last week's high of
$179.29. Such a move would represent a major change of fortune for the long-term
direction of BBH. Other biotech ETFs such as iShares Nasdaq Biotech (IBB) and
SPDR S&P Biotech (XBI) have also begun to show bullish chart patterns. Just
be aware that many leading biotech stocks are scheduled to report their
quarterly earnings this week, so the sector could become quite volatile.
One international ETF we like for potential long entry this week is Market
Vectors Russia (RSX). Not surprisingly, RSX has moved lower alongside of the
S&P 500 in recent months. However, RSX has been showing substantial relative
strength to the U.S. stock market because it is still well above its 52-week
lows, unlike the S&P 500 and Dow Jones Industrial Average.
