Commentary:
Stocks kicked off the week with a choppy, indecisive session of trading yesterday, as the broad market reclaimed a chunk of the previous day’s losses. The major indices opened higher, sold off to briefly “undercut” the prior day’s lows, then moved back into positive territory in the afternoon. The Nasdaq Composite rose 0.9%. Both the S&P 500 and Dow Jones Industrial Average gained 0.6%. The small-cap Russell 2000 and S&P Midcap 400 indices advanced 0.4% and 0.6% respectively. The S&P and Dow closed just below the upper quarter of their intraday ranges. The Nasdaq settled near its high of the day.
Total volume in the NYSE receded 32%, while volume in the Nasdaq was 20% lower than last Friday’s level. The substantially lighter volume in both exchanges tells us yesterday’s bounce lacked the support of institutional buying. Considering the prior day’s sell-off occurred on sharply higher volume (a “distribution day”), the near-term price to volume relationship in the broad market remains negative. If stocks attempt to recoup the rest of their July 16 losses from here, it will be especially important that any rally is backed by higher volume. Otherwise, any hard-earned gains can be too easily erased with just another round of institutional selling.
Due to its relative strength and a bullish pattern on the daily chart, Claymore Global Solar Energy (TAN) is one ETF that has recently come onto our radar screen. Since July 1, the S&P 500 SPDR (SPY), a popular ETF proxy for the benchmark S&P 500 Index, has gained 5.1%. Although that’s a significant advance, TAN has actually jumped 19.1% higher in the same period. The relative strength of TAN versus the S&P 500 is easy to see on the “percentage change chart” below:
Most of the bullish divergence and outperformance of TAN occurred in the first week of July (note the steep angle of ascent), as SPY bounced from its oversold condition. However, a closer look at the relative performance of these two ETFs over just the past two days shows the relative strength of TAN is still in effect. For example, the July 16 sell-off caused SPY to slide back down to its July 8 low. However, notice that TAN stayed well above its prior low form July 8. In fact, it even formed a “lower high,” above its July 12 low. Then, when SPY bounced to recover only a relatively small portion of its July 16 lows yesterday, TAN roared back towards the highs of its recent range, erasing nearly all of last Friday’s loss. This positions TAN for a breakout and resumption of its developing uptrend if the broad market at least holds up in the coming days. The bullish, near-term consolidation of TAN is shown on the daily chart below:
What is not shown on the “percentage change chart,” but is plainly evident on the daily chart above is that TAN also formed a “higher low” at the end of June/beginning of July. Conversely, all the main stock market indexes formed “lower lows” at that time because they fell below their May/June lows. This is further confirmation of the relative strength TAN has been exhibiting for the past month. Now, TAN could be considered for potential buy entry on a breakout above the high of its recent range (above the $7.80 area). However, a pullback to the 20-day EMA (the beige line), which would “undercut” the low of the current trading range, would be a lower risk entry point. Nevertheless, all bets are off for buying TAN if the major indices slide much lower, back down to test their July lows.
Now that the main stock market indexes suffered a bearish “distribution day” after failing to move back above key resistance of their 50 and/or 200-day moving averages last Friday, then bounced unimpressively on lighter volume yesterday, there’s a decent chance the major indices may be headed back down to their early July lows. But it’s equally likely stocks will just chop around in a sideways range in the near-term. With the S&P 500 undergoing a failed breakout in mid-June, followed by a failed breakdown in early July, it may be wise to not harbor any strong opinions regarding broad market direction right now. Throw the uncertainty of quarterly earnings season into the mix, and the situation becomes even more unclear. Case in point is that the earnings reports of IBM and Texas Instruments, after yesterday’s close, sparked an after-hours drop in the S&P and Nasdaq futures that took both instruments down to within a few points of the day’s lows. Stay alert out there, and remember to “trade what you see, not what you think.”
Today’s Watchlist:
There are no new setups in the pre-market today. However, the following ETFs are on our watchlist for possible buy entry, depending on broad market conditions: TAN, THD, EWS, IDX, and BRF. As always, we will promptly send an Intraday Trade Alert with details if entering 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.
- No changes to our open positions going into today. All five positions now showing a decent unrealized gain and starting to consolidate or move further in their anticipated directions.
- 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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Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader