S&P Flashes a Buy Signal ($KBE)

today’s watchlist (potential trade entries):

today's watchlist

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 on two separate $50,000 model portfolios (one for ETFs and one for stocks). Changes to open positions since the previous report are listed in a pink shaded cell below. New entries are shaded in green cells. Be sure to read the Wagner Daily subscriber guide for important, automatic rules on trade entries and exits.

open position summary
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closed positions:

open position summary
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ETF position notes:

  • SOXS and DUST triggered their stops and we are out with small gains.

stock position notes:

  • Note that the ORCL position will be sold at market on the open, which is indicated by the letters “CO” in the stop column in the open positions section.

SPECIAL NOTE: The only gap rule we are now using applies strictly to entries, where a setup is automatically cancelled if it opens more than 1.3% above or below the trigger price. For example: If the trigger on a buy setup is $20.00 and the price opens higher than 20.26 (20.00 x 1.013%), then the trade is automatically cancelled. As a reminder, when a stock gaps below the listed stop price we automatically sell the stock “at the market” on the open. 

ETF and broad market commentary:

Wednesday was a solid day for stocks. Led by the Nasdaq, the major indices gapped up at the open and spent the remainder of the day consolidating near session highs. By the closing bell the Nasdaq had gained 2.3%, as the Nasdaq 100 added 2.7%. Both the S&P MidCap 400 and the small-cap Russell 2000 ended higher by 1.8%. The S&P 500 tacked on a healthy 1.4% while the Dow Jones Industrial Average was the day’s laggard. The Blue Chip index underperformed as it added only 0.7% on the day

Market internals ended the session on a bullish note. Volume raced higher on the Nasdaq by 1.0% and on the NYSE by 10.0%. Advancing volume outpaced declining volume on both exchanges. On the NYSE, up volume topped down volume by a ratio of 3.6 to 1, while on the Nasdaq the ratio ended the session at 3.8 to 1 in favor of advancing volume. Based on price and volume action, yesterday was clearly an accumulation day on both exchanges and a continuation day for the S&P 500. We have now returned to a buy signal on the S&P 500. Since the Nasdaq is only two days removed from its most recent swing low, yesterday’s strong price action did not result in a bullish signal for this index.

The SPDR S&P Bank ETF (KBE) gapped up and formed a reversal candle as it tested both its 20-day and 50-day Moving Averages. KBE offers a potential buy entry above the ten day high of $23.48. Alternative, KBE could present a buy entry on another undercut of the 20 and 50-day moving averages. Under this scenario, KBE would have to form another reversal candle that would provide the pivot for the potential entry.

S&P Consumer Staples SPDR ETF (XLP)

Our sole open ETF position, EPU, held support of its two day low yesterday and remains intact. Based on yesterday’s market performance, we are now one step closer to having a full-on buy signal for the broad market. If the Nasdaq can repeat today’s performance at least four days removed from the April 23rd low of 2,946, then we will also have a buy signal on this index.

stock commentary:

Yesterday’s heavy volume rally in the S&P 500 generated a buy signal in our market timing model. However, with NYSE a/d volume only at 3 to 1, we did not see the type of explosive action we normally associate with such a day. So for now we are sitting on a weaker than normal buy signal as we wait for the Nasdaq to catch up.

Just because we have a buy signal in place doesn’t mean that we should jump back in to the market. Our scans are turning out decent setups but most stocks need another week or two of consolidation. We also have earnings to deal with, as many stocks on our internal watchlist report earnings within the next two weeks and we do not feel like stepping in ahead of earnings when conditions are not ideal.

We are selling ORCL “at the market” on Thursday’s open due to the S&P follow through day (in the open positions section, ORCL has the letters CO in the stop column, which stands for close on open). We prefer to exit with a small loss here, as we are not interested in sticking with shorts when the market timing model shifts to a buy, especially when the market selloff is contained to a small percentage (such as 3-5%).

If you are a new subscriber, please e-mail [email protected] with any questions regarding our trading strategy, money management, or how to make the most out of this report.