Healthy consolidation in U.S. Dollar Bull Index (UUP)


Stocks kicked off the month of June with another dose of high volatility, as early gains swiftly dissolved into substantial losses in the final hour of trading. The Nasdaq Composite, up 0.9% at its morning high, limped to the closing bell with a 1.5% loss. The Dow Jones Industrial Average and S&P 500 traded in a similar pattern before finishing lower by 1.1% and 1.7% respectively. Small and mid-cap stocks suffered the worst declines. The Russell 2000 plunged 3.1%, as the S&P Midcap 400 tumbled 2.6%. All the main stock market indexes closed at their dead lows of the day, and just above their lowest closing prices of May.

Despite last Friday’s session preceding a holiday weekend, yesterday’s turnover was even lighter. Total volume in the NYSE was 2% lower than the previous day’s level, while volume in the Nasdaq eased 4%. Volume in both exchanges also remained below 50-day average levels. Since yesterday was the fourth consecutive session of slower trade in the NYSE, it will be important to see which direction the market moves when volume comes back into the market. A solid session of higher volume gains would be a positive start, but clear signs of institutional buying have been absent since the broad market began its correction early last month.

Persistent weakness in the euro helped the U.S. Dollar Bull Index (UUP) to trend steadily higher throughout the first half of May. Since then, over the past two weeks, UUP has been consolidating in a sideways range, near its recent highs. This “correction by time” is healthy because it enables UUP to build a base of support, from which to subsequently make another leg higher. It also allows the various moving averages to catch up to the price of UUP, thereby providing support as well. Take a look:


The dotted horizontal line on the chart above marks the low of the two-week consolidation, a short-term area of support. Notice how the 20-day exponential moving average (the teal line) roughly converges with that price as well. Rather than buying UUP on a breakout above the high of its current consolidation, we would prefer to enter UUP on a pullback that “undercuts” the short-term area of support shown above. Buying a dip below an obvious level of support provides lower risk entry points in the current environment, which translates into a more positive reward-risk ratio for the trade. Therefore, we’re stalking UUP for potential buy entry on an “undercut” of its current consolidation.

In yesterday’s commentary, we annotated and discussed the short setup that was developing in Market Vectors Gold Miners (GDX). When the market opened yesterday, GDX initially rallied higher, but reversed sharply lower after running into horizontal price resistance on its daily chart. This trapped the bulls who bought the rally above the three-day highs, and caused a bearish “shooting star” candlestick pattern to form. In the coming days, we anticipate a move back down to its 200-day moving average and May low:


One week ago, the S&P 500 bounced sharply off key support of its February 2010 low, but the index headed back down after bumping into overhead resistance of its 200-day moving average. Now, it appears the February lows may soon be tested again. The daily chart of the S&P 500 Index is shown below:


Obviously, a break below the February/May lows (the dashed horizontal line) would be quite bearish, and would probably cause the major indices to make another leg down within the current downtrend. However, an equally likely near-term scenario may be for stocks to hold their recent lows, and attempt to muster up the strength to break above last week’s highs. The more negative market sentiment becomes this week, the more likely stocks will bounce again, even if only for a few days. Still, because intraday and overnight volatility remains quite high, with no convincing signs of price stabilization in the broad market, our market timing model continues to suggest remaining in a passive, capital preservation mode. Remember that patient and disciplined traders are always rewarded in the long-term. Moreover, be sure to trade what you see, not what you think.

Today’s Watchlist:

There are no new setups in the pre-market today. As discussed above, we’re monitoring UUP for potential buy entry on a pullback, but it is presently well above our trigger price.

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.

    position summary

    Having trouble seeing the position summary graphic above?
    Click here to view it directly on your Internet browser instead.


  • No changes to the open positions above.
  • USO did not trigger for entry, and has been temporarily removed from our watchlist.
  • 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.
    Have you had your free 1-month trial to Morpheus Trading Group’s additional ETF and stock trading newsletters?

      Edited by Deron Wagner,
      MTG Founder and
      Head Trader