S&P 500 holds the 50-day MA ($SPY)

market timing model: Buy mode

Current buy signal was generated on the close of June 13

Past signals:

Neutral signal generated on close of June 12

Buy signal generated on the close of April 30

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today’s watchlist (potential trade entries):

$todays watchlist

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open positions:

Below is an overview of all open positions, as well as a report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based a $100,000 model portfolio. Changes to open positions since the previous report are listed in pink shaded cells below. Be sure to read the Wagner Daily subscriber guide for important, automatic rules on trade entries and exits.

$todays watchlist

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closed positions:

open position summary

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ETF position notes:

  • No trades were made.

stock position notes:

  • Sold 100 shares of $KORS and have 50 remaining.

ETF, stock, and broad market commentary:

Keeping swing traders on their toes, stocks ripped higher yesterday, following on the heels of an equally significant decline the previous day. The main stock market indexes jumped an average of roughly 1.3% higher yesterday, enabling the major indices to recover their prior day’s losses (and then some). Turnover edged 5% higher in the NYSE, enabling the S&P 500 to score a bullish “accumulation day,” a positive sign of institutional buying interest. However, volume in the Nasdaq ticked slightly lower.

Our timing model is back in buy mode due to Thursday’s strong accumulation day in the S&P 500. Had the S&P only climbed 0.5% to 1.0%, then our model would still be in neutral. However, the 1.5% gain in the S&P on higher volume produced a follow through day. A follow through day is generally at least a 1.5% gain in a major average on higher volume, which potentially signals the beginning of a new bull market after a corrective phase.

Whenever a new buy signal is generated it is important for the market to avoid distribution days in the short term. While one distribution day may not kill the new signal, two days of distribution would be tough to overcome.

Since mid-April, one of the strongest industry sector ETFs in the market has been Market Vectors Semiconductor ($SMH). We initially bought this ETF when it broke out back in April, sold into strength for a nice gain several weeks later, then re-entered with partial share size after it began pulling back (May 23).

As the broad market has been consolidating and digesting its recent gains over the past month, $SMH has been holding up well and we remain long our partial position from the May 23 entry.

However, now that the 50-day moving average has finally risen to meet the price of $SMH, we are also prepared to add to the position, in anticipation of a pending resumption of its new uptrend and a breakout to a new 52-week high. Below is the daily chart pattern of $SMH:


$SMH at support of its 50-day MA

As you can see, yesterday’s intraday low in $SMH nearly coincided with a kiss of its rising 50-day MA (teal line). When an ETF or stock with relative strength breaks out of a base, the first subsequent pullback to the 50-day MA typically presents a low-risk buying opportunity because it is the level where institutions often step back in to buy as well.

Rarely will the first retracement to a 50-day MA that follows a substantial breakout fail to hold up on the first test (although “undercuts” of one or two days are common). As such, please note we have listed $SMH on today’s watchlist as a potential buy entry. The trigger price is above yesterday’s high, and the stop remains below convergence of yesterday’s low and the 50-day MA, thereby making for a positive reward-risk ratio on the setup.

Note this $SMH buy setup is merely adding shares to an existing position. As such, the new average price for entire position would be reflected in the “open positions” section of tomorrow’s newsletter (if it triggers). Also, notice we have slightly tweaked the protective stop to give the setup a tad more “wiggle room” below support of the 50-day MA (which was not even a factor in setting stop price at the original time of trade entry).

In the June 6 issue of The Wagner Daily, we pointed out the “triple convergence of support” that was forming in the S&P 500. Specifically, we highlighted how key intermediate-term support of the 50-day moving average, dominant uptrend line, and horizontal price support from the prior highs were all merging together. To refresh your mind, here is the exact chart of the S&P 500 SPDR ($SPY) we showed that day:


$SPY nearing its 50-day moving average

The very next day, the S&P 500 “undercut” that area of support on an intraday basis, but formed a bullish reversal candle to close above it. Such a bounce was not surprising, as the more technical indicators that converge to form support, the more significant that support becomes.

After the formation of that triple convergence of support on the S&P 500, we indeed expected a bounce, but also still expected the broad market to consolidate a bit longer before resuming its uptrend. Now that stocks have been trading in a range for the past few weeks, the 50-day moving average has again risen up to provide support for $SPY (just like the $SMH chart). Here is the current snapshot of $SPY:


$SPY bouncing off 50-day MA

The charts of both $SMH and $SPY above are great examples of the significance of the 50-day moving average as an intermediate-term indicator of support. However, stocks and ETFs are more likely to bounce off the 50-day MA if it is only the first touch of the 50-day MA that follows a convincing breakout from a valid base of support.

Each subsequent test of the 50-day MA that occurs before the index or stock breaks out to another high technically weakens support of the 50-day MA and thereby increases the odds of a breakdown below it. As such, it would be a negative sign for the market if $SPY and/or $SMH break down below yesterday’s lows (which would correspond to a break of the 50-day MAs).

On the stock side, we stopped out of 60% of our $KORS position on Thursday’s shakeout candle. We believe this is only a short-term selloff, so we will look to add back the shares we stopped out of as soon as a low risk entry point develops. We still have 50 shares of $KORS remaining with no change in the stop price.

We have one new buy setup on today’s watchlist in $DDD:

$DDD has been consolidating in a tight range for several weeks with a higher swing low in the base. If yesterday’s reversal candle holds, then $DDD will have another swing low in place. Our buy entry is over yesterday’s high, with a stop beneath the range lows. We will look to add to our position at higher prices if a low risk entry develops.


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