Commentary:
An indecisive session finished on a positive note yesterday, as the Nasdaq led the broad market for a second straight day. After gapping higher on the open, stocks drifted back down by mid-day, but the bulls resumed control in the afternoon, enabling the major indices to settle in the plus column. Closing near its intraday high, the Nasdaq Composite showed relative strength with a 1.0% gain. Conversely, the blue-chip Dow Jones Industrial Average only edged 0.1% higher and finished just above the middle of the day’s range. The S&P 500 rose 0.4%. Rallying 1.1%, the small-cap Russell 2000 Index kept pace with the Nasdaq. The S&P Midcap 400 similarly advanced 0.7%..
With total volume ticking 2% higher, the Nasdaq scored its second straight “accumulation day.” However, turnover in the NYSE was 9% lighter than the previous day’s level. Curiously, despite the Nasdaq registering back-to-back days of higher volume gains, it was the sixth straight day of declining trade in the NYSE. Mutual funds, hedge funds, and other institutions are apparently placing their bets on a faster recovery in the tech-heavy Nasdaq. When funds come back into the stock market after a sharp period of decline, leadership is frequently found in more aggressive growth areas such as the Russell 2000 and Nasdaq, rather than the more “defensive” Dow.
Jumping more than 6%, U.S. Natural Gas Fund (UNG) was one of the top-gaining ETFs in the market yesterday. More importantly, UNG convincingly broke out above the high of a two-month base of price consolidation, backed by a volume spike to nearly twice its average daily level. Yesterday’s breakout is shown on the daily chart of UNG below:
In the near-term, there is now minimal resistance to contain the price of UNG. The prior lows of December 2009, around the $8.50 level, is the next minor area of technical resistance. Above that, UNG will contend with more substantial resistance from the price congestion in the beginning of the year. However, that’s about 15% above the current price. We were already long UNG going into yesterday’s session, and then added to the position on the clear breakout above the high of the range. But if you missed our initial buy entry, any pullback to near the breakout level (the $7.70 to $7.80 area) presents a secondary buy point, as that prior level of resistance should now act as support.
Precious metals sold off yesterday, and price action is starting to confirm our recent analysis of bearish development in the precious metals ETFs. The iShares Silver Trust (SLV) has fallen back below key support of its 50-day moving average, after trading above it for just four days. Take a look:
Still trading well above its 50-day MA, the SPDR Gold Trust (GLD) is holding up better than SLV. However, GLD may have formed a “lower high” on its daily chart. Any further weakness in today’s session will cause GLD to lose near-term support of its 20-day exponential moving average as well. For your information, DGZ and DZZ are the ticker symbols for two “short ETFs” inversely correlated to the price of spot gold. Though we’re not short any of the actual precious metals commodity ETFs, we remain short Market Vectors Gold Miners (GDX), which is composed of a basket of individual gold mining stocks. Falling 1.7% yesterday, GDX appears to be completing the right shoulder of a bearish “head and shoulders” pattern on its daily chart (with a declining neckline).
In the May 28 issue of The Wagner Daily, we pointed out U.S. Oil Fund (USO), which roughly tracks the price of crude oil, as a potential short setup on a bounce. Thereafter, USO failed to go any higher, and therefore missed our trigger price for short entry. However, USO showed considerable strength yesterday, and now looks as though it may make another run at the $35 to $36 range. If it does, we plan to enter USO as a new short position. An updated daily chart of the setup is shown below:
While the S&P 500 recently fell to test its February 2010 lows, and is now trading below its 200-day moving average, one ETF that has shown relative strength to the broad market throughout the May sell-off is the S&P Retail SPDR (XRT). The daily chart is shown below:
Although it’s below its 50-day MA, like the rest of the major indices, XRT never came close to retracing down to its February lows. The ETF also remained well above its 200-day moving average (the orange line) throughout the entire correction. Yesterday, XRT popped above resistance of its 6-week downtrend line, which should generate bullish momentum in the near-term. Now, a rally above the May 28 high of $41.16 may present a buying opportunity for momentum traders. Nevertheless, with the Nasdaq only in a short-term uptrend, but still in an intermediate-term downtrend, long positions with a direct correlation to the broad market should be managed proactively, using trailing stops to protect any profits along the way.
Negative comments out of Hungary this morning are weighing heavily on the euro, as well as the S&P and Nasdaq futures. In the pre-market, U.S. Dollar Bull Index (UUP) is trading above the high of its recent consolidation. While this is bullish, we were looking for a pullback that “undercut” support in order to buy UUP. Today’s continuation breakout may hold up, but we prefer to buy a currency ETF like UUP on a pullback to support, rather than a breakout above a range. Still, UUP remains on our watchlist for potential buy entry. We’re also stalking select treasury bond ETFs (such as TLT) for possible buy entry on its current pullback.
Today’s Watchlist:
U.S. Oil Fund (USO)
Short
Shares = 200
Trigger = $35.78 (probe above the horizonal price resistance)
Stop = $38.28 (above the 200-day MA and 61.8% Fibonacci retracement)
Target = new 52-week low (will trail stop)
Dividend Date = n/a
Notes = See commentary above for explanation of the setup. Since we’re not sure exactly how high USO will bounce before starting to head back down, the trigger price is subject to change. In the event of any change, we’ll send an Intraday Trade Alert with details. Also, subscribers with non-marginable, cash accounts might consider buying DTO or SZO, inversely correlated “short ETFs,” rather than selling short USO, if it triggers. However, our “official” play is a short sale of USO.
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 added to the UNG position yesterday. We also raised the stop, in order to remove some risk from the trade. New average price and position size is reflected above.
- 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