Commentary:

Stocks oscillated in a choppy, directionless fashion throughout yesterday’s session before finishing modestly lower. To Nasdaq Composite slipped 0.1%, the Dow Jones Industrial Average 0.2%, and the S&P 500 Index 0.3%. The small-cap Russell 2000 managed to finish in positive territory, gaining 0.3%. The S&P MidCap 400 was unchanged. All the main stock market indexes closed near the middle of their intraday ranges. It was also an “inside day,” meaning yesterday’s highs and lows of the major indices were contained within their respective ranges of the previous day.

In both the NYSE and Nasdaq, total volume was 1% lighter than the previous day’s level. The slightly lower volume was positive, as higher volume during a consolidation day could have been indicative of bearish “churning.” Since the main stock market indexes began the consolidation patterns near their recent highs, the price to volume relationship of the broad market has been bullish overall.

Alternative energy is one industry that has suddenly started showing a lot of relative strength, indicating that institutions have begun rotating funds into the sector. Yesterday, PowerShares Clean Energy (PBW) broke out above key resistance of its prior highs from July, as well as its 200 day moving average. Perhaps most importantly, volume spiked to more than 300% its average daily level. This is shown on the daily chart of PBW below:

The best thing about yesterday’s breakout was the strong volume that accompanied the advance. This tells us accumulation was taking place amongst mutual funds, hedge funds, and other institutions. Furthermore, the weekly chart looks pretty good as well, which confirms the relative strength exhibited on the daily chart. Below, notice that PBW has recently reversed its dominant trend by breaking out above an 8-month downtrend line:

Based on the combination of a breakout above horizontal price resistance, relative strength, strong volume, and the recent reversal of the dominant downtrend, we like PBW for long entry on any slight pullback. Ideally, a quick retracement to near yesterday’s low, which correlates with the breakout level, would provide a lower-risk entry point than buying near the current price. If we enter PBW, we will promptly send an Intraday Trade Alert to regular subscribers.

In the September 28 issue of The Wagner Daily, we said, “In the near-term, one of the best senarios for SPY (the S&P 500 SPDR) would be a tight, light volume consolidation pattern for the next several weeks, holding above that key level of support (the breakout level above the August high). This would have the benefit of allowing the broad market to absorb its recent gains, while building a base of support from which to potentially launch another leg higher.” So far, a lateral price consolidation is indeed what we are seeing. As such, current broad market price action remains healthy, and will likely continue to be, just as long as the S&P 500 holds above the 1,130 breakout level. On the upside, 1,150 is the magic number to watch, as it marks the high of the recent range.

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Today’s Watchlist:

There are no new setups in the pre-market today. Although we like PBW for potential buy entry, our model ETF portfolio is now at its maximum buying power. We may consider closing one of our open positions and replacing it with PBW, but we will send an Intraday Trade Alert if any such action is made.

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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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Notes:

• AMJ triggered for long entry, as per the detailed trade setup listed in yesterday’s Wagner Daily.
• 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 support@morpheustrading.com if not already set up for this value-added feature we provide to subscribers.

Edited by Deron Wagner,
MTG Founder and
Head Trader