Bullish reversal off the lows in Natural Gas ETF ($UNG)

market timing model:

– Signal generated on the close of April 30 (click here for more details)

today’s watchlist (potential trade entries):

$todays watchlist
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open positions:

Below is an overview of all open positions, as well as a report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based a $100,000 model portfolio. Changes to open positions since the previous report are listed in pink shaded cells below. Be sure to read the Wagner Daily subscriber guide for important, automatic rules on trade entries and exits.

$todays watchlist
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closed positions:

open position summary
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ETF position notes:

  • No trades were made.

stock position notes:

  • Sold $PRKR on the open for a small loss.

ETF, stock, and broad market commentary:

After trading slightly lower and in a tight, sideways range throughout the first half of the day, stocks staged a rally attempt just after mid-day, but the buying interest was short-lived and the broad market drifted back down. The Nasdaq Composite dipped just 0.1%, but turnover in the exchange ticked 5% higher. Although the Nasdaq’s loss was not enough to count as a “distribution day,” the session was definitely indicative of bearish churning (stealth institutional selling into strength). The S&P 500 lost 0.4%, but on volume that was a bit lower than the previous day’s level.

Because the broad market rallied in the early afternoon, but failed to hold onto those intraday gains into the close, several of the major indices formed a candlestick pattern known as a shooting star, a bearish reversal pattern that often precedes a near-term correction within an uptrend.

Below, we have highlighted the shooting star candlestick that formed on the daily chart of PowerShares QQQ Trust ($QQQ), a popular ETF proxy for the Nasdaq 100 Index:

$QQQ shooting star candlestick

The combination of the Nasdaq registering a (modest) loss on higher volume and the formation of the shooting star candlestick means the index may be setting up for a near-term correction (either pullback or consolidation). Since the Nasdaq has shown relative strength and led the rest of the major indices higher on this most recent leg of the uptrend, the rest of the major stock indexes would likely follow suit. BUT, this is not a bad thing.

Even though we are currently positioned on the long side of the market, we would actually welcome a healthy short-term correction because the major indices have become rather extended away from near-term support levels. If the extension becomes too great, the odds of a more significant correction increase. Therefore, an orderly correction from here would enable stocks to catch their breath and build new bases of consolidation from which to stage their next legs up. Furthermore, either a correction by price (pullback) or correction by time (consolidation) could give us some low-risk entry points on a few strong ETFs we have been internally monitoring, but have avoided buying due to unfavorable reward-risk ratios.

Because Market Vectors Semiconductor ETF ($SMH) is already nearing its target and is now showing an unrealized gain that is more than two times the amount of our initial risk, we are squeezing the stop even tighter going into today’s session. The new stop in $SMH is at $38.26, which is just below yesterday’s low and the 20-EMA on the hourly chart (remember our recent commentary where we talked about this steep uptrend line in $SMH).

US Natural Gas Fund ($UNG) had a nasty shakeout after yesterday morning’s weekly inventory report, but it quickly snapped back. Undercutting the prior swing low of April 4 by a few cents, $UNG missed our stop and then quickly reversed back into the prior day’s range. That shakeout could be what was needed in order for $UNG to start moving higher again. With 3 consecutive days below the 50-day moving average, it really needs to get back above it again within the next day or two. As for our other two open ETF positions ($EIDO and $TAO), we intend to hold both of them through the anticipated near-term pullback in the market.

$UA was added to the portfolio yesterday, as it broke out above the handle high. Volume picked up on the session, but the close was in the middle of the day’s range, which isn’t ideal, but since the market sold off late in the day it is acceptable. $P closed above $15 on a big spike in volume. We raised the stop in $LNKD in case the price action fails to hold the 50-day MA, which is the “line in the sand” for our long positions, as we rarely hold on to stocks that break down below this level.

Our internal watchlist remains strong. $DDD and $KORS top the list, with solid earnings and momentum growth and quality basing action. Both these stocks are currently forming a bullish base known as a cup and handle pattern. On the charts below, we only see the cup portion of the pattern as they have yet to form a proper handle. A handle is at least one week in length and usually pulls back about 5% to 10% off a recent swing high. Waiting for a handle to form is crucial, as it allows us to identify a low risk entry point.



relative strength combo watchlist:

Our Relative Strength Combo Watchlist makes it easy for subscribers to import data into their own scanning software, such as Tradestation, Interactive Brokers, and TC2000. This list is comprised of the strongest stocks (technically and fundamentally) in the market over the past six to 12 months. The scan is updated every Sunday, and this week’s RS Combo Watchlist can be downloaded by logging in to the Members Area of our web site.

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