SPDR Gold Trust (GLD) in a precarious state


Stocks got off to a negative start yesterday morning, as the main stock market indexes tumbled 1.5% within the first hour of trading. But the bulls returned to the scene in the afternoon, enabling the main stock market indexes to recover early losses. In the end, it was a wash, as the major indices finished near unchanged levels and with mixed results for the second day in a row. The S&P 500 edged 0.1% higher, the Nasdaq Composite was flat, and the Dow Jones Industrial Average slipped 0.1%. Small-caps showed considerable relative weakness, as the Russell 2000 lost 0.9%. However, the S&P Midcap 400 eased just 0.1%. With the exception of the Russell, which settled near the middle of its intraday range, the main stock market indexes closed near their best levels of the day.

Total volume in the NYSE ticked 5% higher, while volume in the Nasdaq was 8% lighter than the previous day’s level. The higher volume with nearly unchanged closing prices of the S&P and Dow may have been indicative of a bit of bearish “churning,” which occurs when institutions stealthily sell into strength. However, it’s positive that lighter turnover accompanied the Nasdaq’s second session of price consolidation. In both exchanges, advancing volume was roughly on par with declining volume.

Yesterday, we pointed out several international ETFs showing relative strength to the major indices, and suggested they could become leaders if the broad market holds up in the near to intermediate-term. Each of those three ETFs (IDX, BRF, and EWS) was little changed yesterday, and remains on our watchlist as a potential buy candidate. Within the U.S. markets, a handful of ETFs have recently begun showing substantial relative strength, despite the flat price action of the main stock market indexes over the past few days. One such ETF is Powershares Agriculture Fund (DBA), which we bought in our model portfolio on June 30, then added to on July 8. Since then, it has trended steadily higher, and has broken out above key resistance levels. The daily chart of DBA is shown below:


On June 29, DBA gapped down below support of its trading range and 50-day MA, then snapped back the following day. When it did so, we bought DBA on a rally above the June 29 high. This is known as an “undercut” entry, and is one of the lowest risk entries into a long position. This type of entry works because the bulls who just got shaken out of their position are forced to buy back into it the following day, at a higher price, thereby driving the ETF higher. Unlike a breakout entry, the “undercut” entry is not very obvious, which is probably one of the reasons it works so well. Now, as DBA approaches our original price target, we plan to sell into strength, locking in a nice profit on the trade.

While most industry sectors are still well below their June highs, the Semiconductor HOLDR (SMH) has been showing relative strength by already testing its prior “swing high” from last month. If the main stock market indexes make another leg higher from here, rather than pulling back sharply, SMH could outperform to the upside. Traders might consider buying SMH on a breakout above its June 2010 highs, especially if it is preceded by a “bull flag” pattern that may be developing. The prior highs are annotated by the dashed horizontal line on the daily chart below:


Following the weekly natural gas inventory report, U.S. Natural Gas Fund (UNG) rocketed 6.5% higher yesterday, causing the ETF to finally move back above its 50-day moving average. We were about to give up on this ETF, as it was staying below its 50-day MA for too long, but yesterday’s price action was encouraging. Now, we just need to see whether the rally was a “one-day wonder,” or if increasing momentum carries UNG back to test last month’s high. Regardless, a clearly-defined “swing low” support level has now been established, and it’s becoming apparent the long-term downtrend of UNG is reversing. Annotated on the chart below, a rally above its short-term downtrend line should swiftly carry UNG back to its prior high:


SPDR Gold Trust (GLD) is in a precarious position, as it has been unable to recover from its sharp breakdown of July 1. The potential short setup is shown on the daily chart below:


For nearly two weeks, GLD has been consolidating in the lower half of that day’s big red candle, and is stuck below resistance of its 50-day moving average. The 20-day exponential moving average crossed below the 50-day moving average two days ago, which is another bearish signal. Now, if GLD drops below its July 14 low of $117.59, it will trigger a valid short entry point that seeks to take advantage of a correction. A realistic price target would be support of the 200-day MA, presently at $111.43. Presently, we’re short Market Vectors Gold Miners (GDX), which has a similar chart pattern to GLD.

With minimally changed prices over the past two days, the S&P, Nasdaq, and Dow remain stuck at the pivotal resistance levels we’ve been discussing for the past several days. While it might be considered negative that the indexes have not yet been able to move higher, recent price consolidation could be considered bullish. The longer the major indices hold near the week’s highs, the greater the chance of an eventual breakout to make another leg higher. Still, we’re not holding our collective breath. Monthly options expiration, typically a volatile session in the market, is today. Furthermore, a slew of leading companies report earnings next week, any of which have the capability to throw the market a surprise curveball. For now, we’ll just focus on managing our existing positions for maximum profitability. All five of them, three long and two short, moved in our favor yesterday.

Today’s Watchlist:

There are no new setups in the pre-market today. Per the commentary above, IDX, BRF, EWS, and SMH are potential buy candidates. However, with the major indices at key resistance levels, we would first like to see a bit of correction or pullback in the broad market, which would reduce the risk of a failed breakout, and increase the reward-risk ratio of any new long entries. As always, we will promptly send an Intraday Trade Alert with details if buying anything new.

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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  • Stop has been raised in DBA, which is nearing our price target of $25.90.
  • On July 1, TLT paid a dividend of 0.31 per share. This additional profit 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’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.
  • 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.
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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader