Stocks registered a solid session of gains on Thursday but trade was light. The market gapped higher at the open and spent the entire day mired in a trading range. All five major indices were up on the day, with the Dow Jones Industrial Average leading the advance. The blue chip index gained 1.4% on Thursday. The S&P 500 tacked on 1.3%, while the Nasdaq, S&P MidCap 400 and small-cap Russell 2000 ended the session up by 0.7%, 0.8% and 0.2% respectively.
Market internals ended the session mixed. Volume was noticeably down across the board. Turnover on the Nasdaq plunged by over 23%, while on the Big Board it fell by nearly 30%. The advancing to declining volume ratio ended the day at 4.2 to 1 on the NYSE and 1.8 to 1 on the Nasdaq. Thursday's action appeared devoid of institutional involvement.
Our open positions in QID, EUM and RTH (short) are performing as we anticipated. EUM struggled yesterday but held support at our initial entry price. RTH was very weak compared to the broad market on Thursday. Should the market come under selling pressure on Friday, RTH could fall hard.
The iPath DJ-UBS Livestock Total Return Sub-Index ETN (COW) gapped down violently below both the 20 and 50 day moving averages on March 15th. Since then, COW has undercut the 200-day MA and is now poised to fill the gap. A rally back into the 20-day EMA could present a short entry trigger for this ETF. We are monitoring COW closely for a possible short entry.
The SPDR S&P Emerging Asia Pacific ETF (GMF) has lost support of the 200-day MA for the second time in as many months. Yesterday, this ETF closed near the low of the session on strong volume. A drop below the three day low of $78.35 could result in significant downside for GMF. For more aggressive traders, a partial short position could be entered below Thursday's low. GMF is not an official setup but we are monitoring it closely for a possible short entry.
Yesterday's lack of volume took a good bit of luster off of a positive day in the market. Further, there was divergence within the market. The Nasdaq, S&P MidCap 400 and small-cap Russell 2000 showed distinct relative weakness to the DJIA and the S&P 500. The rally clearly lacked broad based participation. NOTE: Today is a quadruple witching options expiration day. Typically this means there is a greater likelihood of increased volume and volatility. Index options, index futures, stock options and single stock futures all expire today.
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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 firstname.lastname@example.org