Continued strength in the tech arena launched the Nasdaq Composite to a new six-year high, pulling the other major indices higher as well. The Nasdaq Composite cruised 1% higher, while both the S&P 500 and Dow Jones Industrial Average gained 0.6%. The small-cap Russell 2000 gained 1.2%, moving back above its 50-day moving average in the process, and the S&P Midcap 400 rallied 1.1%. A wave of selling in the afternoon caused the major indices to finish off their highs, but still within the upper third of their intraday ranges.
Volume was higher across the board, enabling both the S&P and Nasdaq to register bullish "accumulation days." Total volume in the NYSE was 4% higher than the previous day's level, while the Nasdaq's volume increased by 7%. The third straight day of higher volume gains in the Nasdaq confirms that institutions have been supporting the index, particularly the tech stocks. Advancing volume exceeded declining volume by more than 2 to 1 in both exchanges, but the NYSE volume spread was positive by as much as 6 to 1 earlier in the day.
The Biotech HOLDR (BBH) has been pretty dormant over the past year, but is now coming back to life. Yesterday, it surged 2.5% higher and closed above resistance of its prior high and closed at a new 52-week high. Similar to how the Semiconductor HOLDR (SMH) broke out above its one-year downtrend line yesterday, BBH broke out above its long-term downtrend line that has been in place since the high of November 2005:
The breakout in BBH was rather significant because of how long the downtrend line has been in place. As such, buying it on any pullback to the prior downtrend line provides you with a low-risk entry point in the position. A third ETF that is in the process of breaking a one-year downtrend line is the Internet HOLDR (HHH). It popped back above its 50-day MA yesterday and closed just above its downtrend line from the high of January 2006. If it holds, we would expect HHH to at least recover 50% of its peak to trough loss. That corresponds to a price target of around 61 on HHH:
While sectors like Biotech and Semiconductors have been rallying sharply over the past week, former leading industries such as Energy and Mining have been falling apart. Clearly, recent market action has been indicative of institutional sector rotation into industries that were stagnant throughout most of last year. Though the S&P and Dow both posted decent gains yesterday, money flow into the Nasdaq is much stronger. The breakouts in SMH, BBH, and HHH are proof of the divergence. For now, the most favorable odds for new long positions are within the Nasdaq sectors.
NOTE: The U.S. stock markets will be closed on Monday, January 15 in observance of Martin Luther King Day. As such, The Wagner Daily will not be published that day, but regular publication will resume on Tuesday.
Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and Morpheus Trading Group, a trader education firm launched in 2001 that provides daily technical analysis of the leading ETFs and stocks. For a free trial to the full version of The Wagner Daily or to learn about Wagner's other services, visit MorpheusTrading.com or send an e-mail to deron@morpheustrading.com.
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