A 200-day MA in play


Stocks bagged their fourth straight day of gains yesterday, as each of the main stock market indexes moved back above support of its 200-day moving average. The broad market jumped sharply higher on the open, surrendered mucch of its gains with a mid-day sell-off, then worked its way back up in the final ninety minutes of trading. The Nasdaq Composite climbed 1.9%, the S&P 500 1.1%, and the Dow Jones Industrial Average 0.8%. Small-cap stocks clearly exhibited relative strength, as the Russell 2000 Index jumped 2.5%. The S&P Midcap 400 finished 1.7% higher. The major indices closed just above the upper quarter of their intraday ranges.

One of the most positive aspects of yesterday’s solid advance was the higher volume that accompanied the rally. Turnover in the NYSE surged 24% above the previous day’s level, while volume in the Nasdaq similarly ticked 17% higher. The broad-based, higher volume gains enabled both the S&P and Nasdaq to register a bullish “accumulation day,” indicative of buying amongst mutual funds, hedge funds, and other institutions. Nevertheless, despite the increased trade, turnover in the Nasdaq still failed to exceed its 50-day average level.

SPDR Gold Trust (GLD), a popular ETF proxy for the price of spot gold futures, has formed an interesting pattern that could lead to a bearish reversal of trend in the near-term. Take a look at the daily chart of GLD:


The dashed horizontal line marks resistance of the all-time high of GLD, at the $123.50 area. After running into that level of price resistance on September 8, GLD began backing off. Though the ETF has not yet retraced very far from its high, the low of the past three days has become a key area of short-term support. If GLD breaks below that level, it will correlate to a breakdown below the 20-day EMA as well. As such, a break below the 3-day low could present a short-side trading opportunity.

Initially, it would be best to view the GLD setup as a trade with a near-term time frame, but it could develop into a longer holding period if the 50-day MA fails to hold support. Perhaps most important about this setup is the importance of not “jumping the gun” with a pre-mature entry point before GLD actually breaks down below its three-day low. Since GLD is still pretty near its high, it would only take one day of solid gains for the ETF to zoom back up. However, odds of a more substantial retracement would be much higher if GLD convincingly slides below near-term support of its three-day low and 20-day EMA.

On a technical level, yesterday’s action was notable for the broad market. For starters, all the major indices reclaimed support of their 200-day moving averages, a closely-watched indicator of long-term trend. However, the breakout above the 200-day moving averages caused several of the main stock market indexes to close right at major horizontal price resistance levels. The positive breakout above the 200-day moving average, but the finish at resistance of the trading-range highs, is annotated on the daily chart of the S&P 500 SPDR (SPY):


After falling below its 200-day MA in May of this year, SPY popped back above that level the following month, but was unable to hold. The inability to hold above the 200-day MA sparked selling pressure that sent the ETF down to a new low in late June. Still, one month later, SPY had recovered back to test resistance of its 200-day MA, near the end of July. Again, after staying above its 200-day MA for less than two weeks, SPY fell back down, setting off a short-term downtrend that dominated most of August. Now, for the third time in as many months, SPY has again reclaimed its 200-day MA, and will be attempting to hold above it over the next one to two weeks.

As for the horizontal price resistance we mentioned (the dashed horizontal line on the chart above), it was simply formed by each failed attempt to move above the 200-day MA in recent months. Over the next few days, traders’ eyes will be on this pivotal area of resistance, just above yesterday’s high. This could lead to higher than usual volatility, along with a tug-of-war, as the bulls and bears battle for dominance at this pivotal resistance level in the broad market. Obviously, we have no way of knowing if this resistance level will remain intact this time around, but one thing seems more certain — placing aggressive bets on the long side of the market at current price levels carries a low overall reward-risk ratio. If, however, stocks convincingly break out of the four-month trading range, we will subsequently look for new long entries on the first pullback.

Today’s Watchlist:

There are no new setups in the pre-market today. Although we are monitoring GLD for potential short sale entry (or DZZ for long entry), we first want to see the reaction to this morning’s solid opening gap higher in GLD. If GLD fails to hold the gap and rolls over, we may send an Intraday Trade Alert with entry details. Otherwise, we’ll just keep GLD on our watchlist for now.

Daily Performance Report:

Below is an overview of all open positions, as well as a performance report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based on the $50,000 Wagner Daily model account size. Changes to open positions since the previous report are listed in red text below. Please review the Wagner Daily Subscriber Guide for important, automatic rules on trigger and stop prices.

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  • EPV hit our stop yesterday, after a nasty opening gap lower. We used the MTG Opening Gap Rules twice over the past week, but we do not use the rules more than twice on the same play; otherwise, we risk getting stuck in an ETF that gaps lower every day. The lack of follow-through in the EPV trend reversal we bought was disappointing, but we followed our rules and stuck to the plan.
  • Stops have been raised higher on TUR and DBA.
  • Reminder to subscribers – Intraday Trade Alerts to your e-mail and/or mobile phone are normally only sent to indicate a CHANGE to the pre-market plan that is detailed in each morning’s Wagner Daily. We sometimes send a courtesy alert just to confirm action that was already detailed in the pre-market newsletter, but this is not always the case. If no alert is received to the contrary, one should always assume we’re honoring all stops and trigger prices listed in each morning’s Wagner Daily. But whenever CHANGES to the pre-market stops or trigger prices are necessary, alerts are sent on an AS-NEEDED basis. Just a reminder of the purpose of Intraday Trade Alerts.
  • For those of you whose ISPs occasionally deliver your e-mail with a delay, make sure you’re signed up to receive our free text message alerts sent to your mobile phone. This provides a great way to have redundancy on all Intraday Trade Alerts. Send your request to [email protected] if not already set up for this value-added feature we provide to subscribers.
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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader