Stocks chopped around in a lazy, sideways range throughout last Friday's session before finishing the day mostly higher. The Nasdaq Composite advanced 0.3% and the S&P 500 eked out a 0.1% gain, but the Dow Jones Industrials lost 0.1%. The mid-cap S&P 400 rallied 0.4% and the small-cap Russell 2000 gained 0.6%, enabling the latter index to squeak by with a new all-time closing high.
Curiously, turnover again declined in both exchanges. Total volume in the NYSE was 5% lighter, while volume in the Nasdaq came in 12% lower than the previous day's level. The overall drop in turnover means that volume levels in both exchanges came in below average every day last week. Friday was the Nasdaq's lightest volume day of the year, while it was the second lightest day of the year in the NYSE. When a market is printing its lowest volume levels in months, it cannot be trusted because it could easily make a sharp move in either direction when instituional activity eventually returns. Without even looking at any technical chart patterns, the unusually low volume levels alone give astute traders sufficient reason for caution on both sides of the market.
After an orderly correction down to its 50-day moving average, the iShares Gold Trust (GLD) has begun to resume its six-month uptrend. We recently discussed GLD when it touched its 50-day MA two weeks ago, but first wanted to see confirmation of price stabilization and the formation of a base of support before re-entering gold-related shares. After bouncing off its 50-MA on February 16, GLD subsequently traded in a tight, sideways range for the next four days before popping over its 20-MA on Friday. We like its recent action and feel GLD will probably set another new high in the near future. Looking at the chart below, notice how GLD perfectly bounced off convergence of its uptrend line and 50-day MA two weeks ago and has once again begun to resume its uptrend:
Although we are not presently in GLD, we did buy individual stock Newmont Mining (NEM) last Friday.
As for the broad market, last Friday's action did nothing to change the overall technical picture. The pivotal 1,295 resistance level on the S&P 500 remains our primar focal point going into today. As mentioned in the February 24 issue, that level is a key "make it or break it" point for the entire broad market. Just as important is that the Nasdaq Composite closed right at resistance of its daily downtrend line. A sharp move in either index is likely to pull the other along with it because of the closely-followed resistance levels in both indices.
It goes without saying that now is definitely not the time to be making aggressive bets on either side of the market. However, the major indices are likely to resolve themselves in one direction or the other within the next one to three days. When they do, being already positioned mostly in cash will enable you to quickly and easily initiate new positions in the same direction as the trend. In the meantime, be sure to have a list of stocks and ETFs that are showing relative strength and relative weakness. Above all, remember to trade what you see, not what you think!
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 .