Stocks rallied sharply yesterday but on lighter volume. After nine days of continuous selling the major indices finally saw a day of strong gains. High beta stocks led the advance as the small-cap Russell 2000, S&P MidCap 400 and the Nasdaq tacked on gains of 2.3%, 2.0% and 1.5% respectively. The broad market S&P 500 ended the session higher by almost 1.3%. The Dow Jones Industrial Average was the day's laggard as it closed out the day with a 1.0% advance. Despite the light volume, Tuesday's rally had broad based support as most industry gropus participated in the advance.
Market internals were solid but mixed. The day ended with volume down across the board. Trade fell by almost 8.0% on the Nasdaq but managed to finish fractionally below par on the NYSE. Still, volume was light enough on the big board to keep us from classifying Tuesday as an accumulation day on the NYSE. Advancing volume was impressive on Tuesday as it outperformed declining volume by a factor of 7.5 to 1 on the NYSE and 6.2 to 1 on the Nasdaq. The market recovered nicely on Tuesday but the move lacked volume which suggests an absence of institutional participation.
TUR continued to demonstrate relative weakness yesterday as it sold off as the broad market traded decidedly higher. Since we are in the money on this trade by a solid amount, we are lowering our stop to near break-even to avoid taking a loss should the market continue to exhibit strength. Trade details our available for our subscribing members in the open positions section of the newsletter.
The iShares S&P Latin America 40 Index (ILF) has been testing a key support level near $49.60 for the past three months. ILF has bounced off of this level three times since March. The next test of this mark could result in an abrupt drop for this ETF. A rally back into resistance near the 20-day EMA and the 200-day MA could provide a short entry trigger for ILF. We will be monitoring this setup closely for as a possible short entry.
During the recent nine day carnage in the broad market, the iShares Nasdaq Biotechnology ETF (IBB) exhibited excellent relative strength as it barely undercut its 50-day MA while the broad market was testing the 200-day moving average. A move back above the two day high at $104.35 may provide a buy entry trigger for a one or two day rally in IBB.
Although the move in the market was impressive the lack of volume makes it suspect. Without the confirmation of a follow through day and/or several sustained days of rallying, we are warranted to consider Tuesday's price action as nothing more than a relief rally.
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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 email@example.com