Morpheus Tradin...'s  Instablog

Stocks ended the session modestly higher on Friday on mixed trade. The small-cap Russell 2000 led the rally as it gained 0.6% on the day. The Dow Jones Industrial Average improved 0.4% while the S&P MidCap 400 and the S&P 500 rose by 0.3% and 0.2% respectively. The Nasdaq closed fractionally above par.

Market internals ended the day mixed. Volume was up 23% on the Nasdaq but down 7.1% on the NYSE. Advancing volume outpaced declining volume by a ratio of 1.5 to 1 on the NYSE and 1.1 to 1 on the Nasdaq. The mixed trade and minimal difference between advancing and declining volume suggests the absence of serious institutional participation in Friday's move.

On Friday we sold half of our position in KOL and IEO into strength to capture solid gains (almost a 1% gain in our portfolio). We also raised the stop on the remaining half of both positions. All trade detail updates are available to our subscribing members in the Open Position segment of the newsletter.

The Dow Jones iPath AIG Agricultural ETF (JJA) lost support of the 20-day EMA and 50-day MA on April 28th. However on Friday this ETF reversed sharply and almost reclaimed both moving averages. A move above Fridays high of $65.35 could provide a buy trigger for JJA. We will be monitoring this setup closely for a possible long entry.

Since gapping up on April 20th, the Direxion Daily Semiconductor Bull 3X Shares (SOXL) has been consolidating just above its 50-day MA. Further, SOXL is showing a bullish divergence between price and the accumulation/distribution histogram (price consolidating as Accum/Dist up trends). Friday's volume contraction provides another possible bullish signal that this ETF is preparing to move higher. A volume fueled move above the three day high of $62.05 may provide a long entry signal for this ETF.

The market continues its relentless climb. Nonetheless, we are sticking to our plan of taking profits quickly as bullish sentiment has reached an extreme across many sentiment indicators. Markets can rally (or sell off) for significant periods of time even once they reach an extreme. However, a major turn in the market (up or down) cannot occur without the trade being "loaded" in favor of bulls or bears. The crowd must be predominantly on one side of the trade in order for a small change in price to elicit a big change of buying or selling behavior. When turns occur, they tend to be swift and decisive. Although we are currently bullish, we do not want to get caught in a major whipsaw.