A critical test of price support


After testing critical support levels the previous day, the major indices bounced in the first half hour of yesterday’s trading, but that’s all the momentum stocks could muster. After a few hours of choppy action, the selling intensified late in the day, as stocks rolled over to new intraday lows with most averages dropping 1.0% or more in the final hour of trading. The S&P Midcap 400 lost 0.8%. The Dow Jones Industrial Average and S&P 500 both gave back 1.0%. The small-cap Russell 2000 and Nasdaq Composite fell 1.1% and 1.2% respectively. All major averages closed near the lows of the session and in the bottom 10% of the day’s range.

Turnover fell short of Tuesday’s heavy pace on both exchanges. NYSE volume declined by 12%, while Nasdaq volume dropped 22%. At this point we really do not need higher volume to confirm down days, as the broad market averages are clearly under distribution. Market internals settled down to more normal levels with declining volume beating advancing volume by a 2.5 to 1 margin on the NYSE. Nasdaq adv/dec ratio was slightly worse at a negative 4.5 to 1.

Our long position in iShares 20+ Year Treasury Bond (TLT) has worked out well over the past few days:

Our TLT buy entry is now in the money with the strong breakout action of the past two days. Although the volume hasn’t been explosive it has picked up on the breakout.

Our Powershares US Dollar (UUP) long position is holding support at the upward sloping 50-day moving average. The price action is currently sandwiched between the 20-day and 50-day MA’s. A breakout above the 20-day EMA and the two-day high should spark a rally that tests the prior high around the 25.60 to 25.80 area.

United Stated Oil Fund (USO) is just barely holding on to support at the 34.00 level with yesterday’s reversal bar action. A break of yesterday’s low should spark a selloff that tests the 31.00 – 32.00 area at the very least.

In the charts to watch category we have a few country-based ETFs that are trading near their 52-week highs.

iShares Thailand (THD) weekly chart:

Intermediate to long-term traders should keep an eye on THD as a potential buy once the broad market settles down. So far the action looks pretty tight on the weekly chart, as it continues to build a solid base in the 42.00 to 49.00 range. It’s easy to spot the great relative strength in THD, as the relative strength line has already broken out to new highs well ahead of the price action. The 10-week moving average is just below and should provide support over the next few weeks. There is nothing to do right now but monitor the price action.

iShares Chile (ECH) weekly chart:

ECH has formed a tight, five month base of consolidation near the highs. It bounced off support of the 200-day moving average in May and has pushed back through the 10-week moving average on the chart above. Its relative strength line has also broken out to new highs well ahead of the price action. Like THD, let’s see if the price action can hold support at the 10-week MA while the broad market sells off. There is nothing to do now but monitor the price action.

Today’s Watchlist:

There are no new setups in the pre-market today. If we enter anything new, we’ll promptly send an Intraday Trade Alert with details.

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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  • DBA long triggered from yesterday’s watchlist.

  • 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.

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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader