Commentary:
A negative reaction to earnings reports from IBM, Texas Instruments, and Goldman Sachs caused stocks to gap sharply lower yesterday morning, but the major indices subsequently staged an impressive reversal that led to solid gains across the board. The broad market began recovering immediately after the open, then never looked back. The S&P 500, down 1.4% on the open, rose 2.5% intraday to finish the day 1.1% higher. The Nasdaq Composite and Dow Jones Industrial Average followed similar intraday patterns before advancing 1.1% and 0.7% respectively. Small and mid-cap stocks turned in the best performance. The Russell 2000 jumped 1.8% and the S&P Midcap 400 Index climbed 1.5%. All the main stock market indexes closed at their highest levels of the session.
This time, higher volume across the board confirmed the stock market rally. Total volume in the NYSE rose 18% above the previous day’s level, while turnover in the Nasdaq ticked 16% higher. Market internals were also firmly positive. In the NYSE, advancing volume beat declining volume by 5 to 1. The Nasdaq adv/dec volume ratio was positive by nearly 3 to 1. The market’s solid gains on higher volume enabled both the S&P and Nasdaq to register a bullish “accumulation day,” indicative of buying participation amongst mutual funds, hedge funds, and other institutions. The lack of solid volume on most of the market’s recent “up” days has been a large factor behind the choppy conditions and lack of follow-through we’ve been seeing lately. As such, it was encouraging to finally see the backing of institutional participation, though we’re definitely not “out of the woods” yet.
Yesterday, several ETFs on our long watchlist turned in strong performances that caused them to either break out above resistance, or close within a few cents of doing so. Our model portfolio is already positioned with five ETFs, each of which is presently showing an unrealized gain. However, we will buy at least a partial position of Market Vectors Brazil Small-Cap (BRF), if it rallies above yesterday’s high in today’s session:
Because the model ETF portfolio is presently near its maximum buying power, we will probably only enter one more position (or none) within the next few days. But for traders looking for additional “self-serve” trade opportunities, we’ve listed a few other bullish ETF setups to consider below. Note that none of these ETFs will be tracked in the model portfolio, unless specifically entered as “official” trades:
In yesterday’s commentary, we said there was a decent chance the broad market’s higher volume selling of July 16, followed by the lighter volume bounce on July 19, could send stocks back down to test their early July lows. However, we also said the market’s recent indecision made it “equally likely stocks will just chop around in a sideways range in the near-term.” Given yesterday’s sharp gap down and subsequent bullish reversal, the latter scenario is definitely playing out. Going into today, most of the major indices are in “no man’s land,” just above the middle of their respective ranges from the June highs to July lows. Meanwhile, key moving averages continue to act as overhead resistance. This is apparent on the daily chart of the Nasdaq Composite below:
Due to yesterday’s bullish, higher volume reversal, near-term momentum could easily enable the S&P and Nasdaq to move back above their 50-day moving averages this time around. . . but then what? Resistance of the prior highs from June will be a pivotal level of resistance the major indices would need to contend with if they move back above their 50 and/or 200-day moving averages. While near-term sentiment may now favor the bulls, only a convincing rally above the June highs would reverse the broad market’s intermediate-term downtrend that remains intact. As we did with buying the Semiconductor HOLDR (SMH) on the July 16 pullback, it may be a good idea to grab one or two long positions with relative strength. However, it’s wise to view the trade as short-term. Don’t get greedy, and be prepared hit the sell button to lock in profits at a moment’s notice. Finally, bear in mind that a rally back to major resistance of the June highs would probably tip the overall reward-risk ratio back in favor of the bears.
Today’s Watchlist:
As per the commentary above, we are stalking BRF for potential buy entry today, at least with partial position size, on breakout above yesterday’s high. Rest of position would be added on a move above the April highs. Because the S&P and Nasdaq futures are gapping higher in the pre-market, we will monitor opening price action, then promptly send an Intraday Trade Alert if/when we enter BRF this morning, rather than listing a pre-determined trigger price in the pre-market that may be invalid due to a price gap.
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.
- Because the 20-day EMA has risen to the same price as our DBA stop, which we recently raised higher, we’re bumping the stop back down a few cents. This gives the ETF a little “wiggle room” at support of its 20-day EMA, while still locking in a gain if DBA hits our adjusted stop.
- GDX bounced alongside of the market yesterday, but we expect it to set a “lower high,” then start heading back down to make another leg lower. As such, no change to the stop yet.
- UNG looks as though it will break out above convergence of its 20 and 50-day MAs today. If it does, it could be a decent place to add to the position if your exposure is lighter than it should be.
- On July 1, TLT paid a dividend of 0.31 per share. This additional profit has been added to both the “Points” and “Current P/L” columns (shaded in light blue to indicate dividend distribution included).
- 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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Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader