Gapping higher on the open, stocks got off to a positive start yesterday. The major indices subsequently grinded higher in the morning, then drifted back down in the afternoon, finishing the day near their positive opening prices. The S&P 500 gained 0.7%, as both the Nasdaq Composite and Dow Jones Industrial Average climbed 0.6%. Small and mid-caps led the way higher. The Russell 2000 and S&P Midcap 400 indices rose 0.9% and 1.5% respectively. The S&P and Dow closed in the middle of their intraday ranges. The Nasdaq finished at the bottom third of its range.
Total volume in the NYSE swelled 17% above the previous day's level, while volume in the Nasdaq increased 8%. The higher volume gains across the board enabled both the S&P and Nasdaq to score a bullish "accumulation day," indicative of institutional buying. As turnover had backed off in recent days, the faster pace of trading that accompanied yesterday's advance was an encouraging sign that funds remain in buying mode.
In yesterday's commentary, we said, "Over the next few days, PowerShares Base Metals (DBB) could break out above a level of horizontal price resistance that enables it to make a nice move. . .DBB has "undercut" (and held) more significant support of its 50-day moving average. Such a shakeout below the 50-day MA could give DBB the momentum to finally break out above its consolidation and make another leg higher. . .If DBB clears resistance of the September 30 high ($18.41), it could quickly attract the necessary buying interest to propel it to a fresh 52-week high." As if right on cue, DBB rocketed 5% higher yesterday, easily clearing its short-term resistance, and closing at a fresh 52-week high. Take a look:
If you missed our initial buy entry into DBB, and didn't buy on yesterday's opening gap above resistance of the September 30 high, we do not recommend buying the breakout today. This is because the rally in DBB is somewhat "out of sync" with the broad market. While the S&P 500 has had four straight days of gains, since bouncing off its 50-day moving averages, DBB only got in gear yesterday. As such, if the S&P pulls back for a few days, it could weigh on DBB as well. Therefore, if still looking for an entry into DBB, a wiser plan of action may be to wait for the first pullback after its breakout, which might coincide with a pullback in the broad market as well. Alternatively, DBB could drift slightly lower to form a "bull flag" pattern on its daily chart. If it does, the first solid gap above the upper channel of the flag could be buyable.
First Trust Natural Gas (FCG), which bounced off support of its multi-month uptrend line and "undercut" its 20-day EMA last week, was another strong performer yesterday.
