Quiet consolidation day


Broad based averages sold off 1% or more from the open during the first hour of trading and undercut the prior day’s low before finding support. Stocks then recovered through the early afternoon but were once again put under pressure after 2:00 pm. A strong bounce in the final half hour of trading allowed the majority of indices to close in positive territory. Overall, it was a constructive day for the bulls, as they were able to fight off two intraday selloffs and close strong. The Dow Jones Industrial Average finsihed up 0.2%. Both the S&P 500 and Nasdaq Composite closed slightly higher at 0.1%. The small-cap Russell 2000 lost only 0.03%, while the S&P Midcap 400 pulled back 0.2%.

Turnover was higher during the first hour of trading but eased off throughout the rest of the day. By the close, both Nasdaq and NYSE volume totals had fallen off the prior day’s pace, which was a positive sign for the bulls (Nasdaq volume dropped 7% vs 2% on the NYSE). The current rally will have a good chance of sticking as long as the major averages continue to consolidate or retreat on lighter volume.

The past two days of consolidation in the major averages has created a few “lines in the sand” in the short-term. A move below the two-day low could spark a pullback that tests the 20-day exponential moving average or the 200-day moving average. However, a move above the two-day high would most likely result in a test of the 50-day moving average within the next few days.

As mentioned in Tuesday’s report, UGA is setting up on the short side:

UGA probed above resistance of its 50-day and 200-day moving averages. There is also resistance from the 50% Fibo level (at 35.50) measured from 5/3 high to 5/25 low. Momentum from the counter trend rally may carry UGA higher for a few more days, but we should see the bears regain control shortly. UGA is shortable in to strength (around the 35.50 – 36.00 area) with a wide stop, or on a breakdown below the 200-day MA.

Our scans haven’t turned up many high quality setups with attractive reward/risk ratios as of late. If the current uptrend continues to develop, then we should eventually see new patterns emerge. For now we are keeping an eye on the action in XRT, which we think is beginning to form a tight range above the downtrend line:

Aggressive traders may wish to establish a small buy in XRT near the 39.00 – 39.50 area with the intention of adding more size if it can hold above the downtrend line and break above 41.00 next week.

In the constructive pattern department, we like the recent price action in the HOLDRS Semiconductor (SMH), as it is poised to close above its 10-week moving average for the first time in seven weeks. Note the strong support on the weekly chart, as the price action closed strong each time there was a dip below the 40-week moving average.

Today’s Watchlist:

There are no new setups in the pre-market today. If any new trades are entered, we will send an Intraday Trade Alert with details.

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 our gap rules, we stopped out of GDX 15 cents above the 20-minute high.
  • 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.
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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader