Commentary:
Stocks followed up Tuesday’s sharp sell-off with a moderate bounce yesterday, but relative weakness in the tech arena held the Nasdaq in check. The major indices opened higher, then chopped around in indecisive fashion throughout the entire day. Even the afternoon Fed announcement on economic policy, which threw no surprises, had little bearing on the range-bound market action. The S&P 500 gained 0.6%, the Dow Jones Industrial Average advanced 0.5%, and the Nasdaq Composite was unchanged. Both the small-cap Russell 2000 and S&P Midcap 400 indices edged 0.2% higher. The S&P and Dow finished near the upper quarter of their intraday ranges; the laggard Nasdaq closed in the middle of the day’s range.
Unfortunately for the bulls, higher turnover failed to accompany yesterday’s bounce, leaving the advance unconfirmed by volume. Total volume in the NYSE was 14% lighter than the previous day’s level, while volume in the Nasdaq receded 2%. Considering the high volume plunge of the previous session, it’s not surprising that turnover ticker lower yesterday. However, this means the price to volume relationship of the broad market continues to favor the bears. For the past two weeks, the dominant theme has primarily consisted of lighter volume “up” days and higher volume “down” days. This, of course, is the opposite pattern of what traders would see in an overly healthy market.
For the past week, we’ve been observing the price action of Market Vectors Vietnam ETF (VNM), the first ETF to specifically target the Asian country of Vietnam. Because VNM has only been trading in the stock market since last August, it needed some time to build a price history that can be charted. Presently, price action is stable, and VNM has been oscillating in a sideways range for the past several months. Now, on a technical level, it is also setting up to break out above the upper channel resistance of that sideways range. If it does, it could present a valid buy entry that seeks to take advantage of a new, intermediate-term uptrend. The trade setup is shown on the daily chart of VNM below:
On Tuesday, after tumbling 2.3%, the S&P 500 closed below short-term support of its 20-day exponential moving average (EMA) for the first time in two months. As often occurs immediately following a big move in either direction, the broad market bounced the following day, but the 20-day EMA held the rally in check. Looking at the daliy chart below, notice how the S&P probed above the 20-day EMA on an intraday basis, but subsequently closed below it:
Previously acting as support, the 20-day EMA has now become a short-term resistance level to watch in the coming days. On an intraday basis, the S&P could easily probe above its 20-day EMA, but we’re interested in whether or not the index manages to close back above that level. This is important because the ability or inability of the S&P 500 to quickly reclaim its 20-day EMA will likely determine the near-term bias of the broad market. If the index is unable to convincingly recover above its 20-day EMA, the negative price to volume patterns of the broad market lately could easily send the index down to its 50-day MA (the teal line). At that point, we would be looking for new, bullish setups of strongly trending ETFs that have pulled back to key support levels, thereby providing low-risk entry points.
Today’s Watchlist:
There are no new setups in the pre-market today. However, we will promptly send an Intraday Trade Alert if we enter any additional ETF positions today.
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.
- Per Intraday Trade Alert, we bought UNG yesterday, as it moved above upper channel resistance of its four-week range. No changes to other open positions.
- 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