Risk vs. Reward


Stocks snapped a five day winning streak to end the session mixed. The Nasdaq put in the day’s best performance as it rose by 0.35%. The small-cap Russell 2000 and S&P MidCap 400 closed higher by 0.2% and 0.1% respectively. By the closing bell both the Dow Jones industrial average and S&P 500 had shed 0.1% yesterday. Despite the mixed trading results the broad market did not appear to lose much of its steam.

For the second time in as many days market internals were mixed. Volume fell by 7% on the Nasdaq and by 3.4% on the NYSE. Declining volume modestly outpaced advancing volume by a ratio of 1.5 to 1 on the Big Board and 1.1 to 1 on the Nasdaq. The drop in volume points to a lack of institutional involvement in Tuesday’s action. Because of the mixed price action and mixed internals we would not classify Tuesday as either an accumulation or distribution day.

Following a gap down day on July 1st, the iShares Silver Trust (SLV) formed a reversal gap up candle yesterday and closed near session highs. We are placing SLV on the watchlist. We categorize this setup as a short term play since it is based mostly on the momentum of the reversal gap. We don’t anticipate being in this trade more than 2 days as it is a somewhat riskier trade. The psychology of the trade is simple. On July the 1st SLV gapped down and tested the two month swing low. This move serves to frighten bulls out of the position and attract short sellers. However, just as abruptly SLV reversed course and thereby trapped newly acquired bears in the trade. This second move carries additional weight because it occurred abruptly and unexpectedly. After just one day of selling pressure, SLV reversed and gapped above the previous day’s gap. A move above the eight day high of $34.78 may provide a buying opportunity in SLV. We may also consider an entry in this trade on a modest gap down or pullback in SLV. We will send an intraday alert should we decide to buy SLV on a pullback.

Yesterday, the Global X China Consumer ETF (CHIQ) formed a bearish reversal candle as it attempted to break above the April 20th high of $18.77. A loss of support at the 200-day moving average ($18.49) could provide a short entry trigger for this ETF. We are monitoring CHIQ closely for a potential short entry.

The major indices spent Tuesday consolidating at the five day highs. This suggests that the market may be consolidating before making another move higher. Nonetheless we continue to remain cautious given the poor risk reward of taking on new trades at the current levels.

Today’s Watchlist:


Shares = 200
Trigger = 34.83
Stop = 33.32
Target = 37.68
Dividend Date = n/a

Notes = See commentary above

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

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  • SLV was added to today’s watchlist.
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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader