Commentary:
A broad-based rally on higher volume yesterday enabled the major indices to reclaim a chunk of last week’s losses, but a bit of late day weakness caused stocks to give back a significant portion of their intraday gains. The Nasdaq Composite gained 1.3%, the S&P 500 Index 1.2%, and the Dow Jones Industrial Average 1.0%. Small and mid-cap stocks showed relative strength again, as the small-cap Russell 2000 Index jumped 1.8% and the S&P Midcap 400 Index similarly rose 1.7%. Despite the market’s solid gains, selling pressure in the final hour of trading lead to the main stock market indexes closing only near the middle of their respective intraday trading ranges.
Perhaps the most positive aspect of yesterday’s session was the higher volume that accompanied the broad market’s gains. Total volume in the NYSE rose 25% above the previous day’s level, while volume in the Nasdaq increased 7%. The higher volume gains across the board caused both the NYSE and Nasdaq to register a bullish “accumulation day,” indicative of buying amongst mutual funds, hedge funds, and other institutions. Nevertheless, although it was the first “accumulation day” in three weeks, turnover in both exchanges still remained below 50-day average levels. In both the NYSE and Nasdaq, advancing volume exceeded declining volume by a ratio of more than 4 to 1.
Over the past month, we’ve noted the relative strength and bullish chart patterns of select international ETFs, primarily those in emerging markets. Recently, we’ve also been discussing the strength of fixed income (bond) ETFs. If combining those two areas, it would be logical to assume a bond ETF focused on emerging markets would be the best of both worlds. Indeed it would be, and iShares Emerging Markets Bond Fund (EMB) has been one of the strongest trending ETFs since the beginning of July. The daily chart of EMB is shown below:
One common indicator of short-term strength is the frequency at which stocks and ETFs pull back to touch support of their 20 day exponential moving averages within the course of their uptrends. With the broad market engaged in choppy and indecisive conditions in recent weeks, very few ETFs have been trending steadily higher without at least correcting to or “undercutting” their 20 day EMAs. However, notice that EMB is trending so strongly that it has not even retraced down to its 20 day EMA since it’s eight-week uptrend began. This ETF has been on our radar screen for weeks, as we have been waiting for a potential entry point on the pullback. Obviously, that hasn’t happened yet, but we will definitely be looking for an entry point on the first significant correction. Specifically, we’d like to see a pullback to and a one-day undercut of the 20 day EMA. As discussed in my book, Trading ETFs: Gaining An Edge With Technical Analysis, the first pullback to touch its 20 day EMA of a strongly trending ETF typically presents an ideal, low risk entry point, in anticipation of resumption of the dominant uptrend. We will continue monitoring this ETF in the background, and will alert subscribers of any potential entry points that develop on a correction.
Yesterday’s rally enabled the benchmark S&P 500 Index to move back above its 50 day moving average. However, resistance of its 20 day exponential moving average is near yesterday’s high. More importantly, the index must still contend with resistance of its 200 day moving average, about 2% above its current price. Moreover, yesterday’s rally technically had little effect on the situation in the Nasdaq Composite, as the index was unable to reclaim its 50 day moving average. Take a look:
The strength of yesterday’s session was encouraging, but it would be quite a stretch to say the market has resumed its previous bullishness. Yesterday’s late-day weakness that caused stocks to give back much of their intraday gains was not a good sign, and the major indices still must contend with a plethora of overhead resistance levels and moving averages. What the market really needs in order to convincingly demonstrate momentum is the punch of strong, institutional buying. Generally, we would like to see turnover at least exceed average levels on the market’s next accumulation day. As mentioned yesterday, we don’t really expect this to happen until at least after the Labor Day holiday, after the summer doldrums have passed.
Today’s Watchlist:
There are no new setups in the pre-market today. Presently, SSG is on our watchlist for potential breakout entry, while EMB is on our radar screen for a pullback entry. As always, we will promptly send an Intraday Trade Alert if/when we enter anything new. However, market conditions are still not ideal for new trade entries.
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 $50,000Wagner 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:
- 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’sWagner 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.
Edited by Deron Wagner,
MTG Founder and Head Trader