Bullish consolidation in PowerShares Agriculture Fund (DBA)


Stocks got off to a strong start with the major averages gapping up 1% or more across the board on the open. Unfortunately for the bulls, the open proved to be the highlight of the session, as stocks rolled over through the morning and once again in the early afternoon. The averages did find some traction and bounced off the lows of the day around the 2:30 pm reversal period, but a slight selloff into the close pushed the averages back into the lower third of the day’s range. The S&P 500 held on to a 0.5% gain, while the Nasdaq Composite and Down Jones Industrial Average were both up 0.3%. The S&P Mid-Cap 400 logged a 0.2% gain. The Small-Cap Russell 2000 undercut the prior day’s low and just barely held on to a positive close at 0.1%.

One positive we can take from yesterday’s selling action is that the major averages did avoid a bearish distribution day. NYSE volume fell 2% short, while Nasdaq volume sank 16% off the prior day’s pace. The lighter volume selloff reveals that institutions were not actively selling stocks into strength. This was also confirmed by the market internals, which closed in positive territory, with advancing volume beating declining volume by roughly 2 to 1 on both exchanges.

The iShares Xinhua China 25 Index (FXI) has been consolidating in a tight range over the past few weeks just below the 200-day moving average. A breakout above the 200-day moving average and the September high (just above 41.15) could provide an early entry that leads to a weekly downtrend line break:

We call the breakout above 41.00 an “early entry” because we are buying in anticipation of a downtrend line breakout. The early entry allows us to get in slightly ahead of the crowd, before the obvious buy point. One could establish a half position at the early entry point and add on the downtrend line break above 42.00.

The banking index has shown quite a bit of relative weakness as of late by setting a lower low in late August while the major averages set a higher low. The rally in SPDR KBW Bank ETF (KBE) has run into resistance of the 50-day moving average and the downtrend line. While we do not expect the banking sector to lead the market higher anytime soon, we’d like to see these stocks at the very least hold current levels and attempt to print a higher low. If KBE fails to push through the 50-day MA and sells off, then we’d like to see support hold up around 22.00.

We continue to see our long position in the PowerShares DB Agriculture Fund (DBA) work its way higher. Since the June bottom, DBA’s pattern is a great example of a stock showing relative strength. If we compare the highs and lows in DBA vs the S&P 500 from the June low, we clearly see how DBA has not made one lower low since bottoming out (detailed on the chart below). As the market attempts to put in a low, these patterns are usually the most reliable for swing trades on the long side.

Today’s Watchlist:

iShares Emerging Market Bond Fund (EMB)

Shares = 250
Trigger = $109.85 (above the Sept. 8 high)
Stop = $107.65 (below strong support of the 50-day MA)
Target = new high (will trail stop)
Dividend Date = October 1

Notes = This setup from yesterday did not yet trigger, but remains on our watchlist going into today, albeit with a lower trigger price (above yesterday’s high for an “undercut” entry). See commentary in the September 8 issue of The Wagner Daily for explanation of the setup.

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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  • Per intraday alert, we lowered the stop in EPV (using our gap rules) to 10 cents below the 20-minute low. We plan to raise the stop back up as soon as we are able.
  • On August 2, TLT paid a dividend distribution of $0.324 per share. On July 1, TLT also paid a dividend of $0.31 per share. This additional profit from both dividend distributions 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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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader