Commentary:

The broad market captured a solid sessions of gains yesterday, although resistance of their June 15 highs caused the major indices to give back some of its advance during the final hour of trading. The Nasdaq Composite advanced 1.6%, while both the S&P 500 and Dow Jones Industrial Average closed 1.0% higher. As we often see on strong days in the market, small and mid-caps led the way higher. The Russell 2000 gained 1.8% and the S&P Midcap 400 rallied 1.9%. Each of the major indices finished in the upper third of their intraday ranges, but well off their highest levels.

Total volume in the NYSE rose by 11%, as volume in the Nasdaq was 17% higher than the previous day’s level. The higher volume gains across the board enabled both the S&P and Nasdaq to register bullish “accumulation days” yesterday. However, it is important to note that turnover in both exchanges still came in below 50-day average levels. If institutional buying was in full swing, volume levels would have spiked much more significantly and the closing price action would have been stronger as well. Nevertheless, overly positive market internals confirmed the bulls definitely had the balance of power. In the Nasdaq, advancing volume exceeded declining volume by a wide margin of 9 to 1. The NYSE ratio was positive by more than 4 to 1.

As the strong market internals indicated, there was healthy buying interest in nearly every industry sector yesterday. Even sectors that have been showing relative weakness, such as Oil, Gold, and Metals, all registered solid gains. Because so many industry sectors are in strong downtrends, yesterday’s gains in most of the ETFs were nothing more than technical bounces off the lows. However, the StreetTRACKS Gold Trust (GLD) is one ETF that may be poised for for a breakout above its six-week downtrend line. Looking at the daily chart below, notice how GLD closed just above resistance of its downtrend line from the May 12 high:

Despite a steep correction over the past six weeks, the longer-term weekly chart shows that GLD remains in an uptrend since its July 2005 lows. The longer the time frame of a chart, the more significant the direction of its trend. Therefore, an uptrend on a weekly chart typically overpowers a shorter-term downtrend on a daily chart. However, the key is to wait for the break of the daily downtrend before buying in anticipation of a resumption of the longer-term uptrend.

After the broad market rallied sharply on June 15, stocks gave back a majority of their gains over the next two days that followed. Buyers returned to the scene yesterday and attempted to follow-through on the rally attempt, but the prior highs from June 15 put the brakes on the upward momentum. The hourly chart of the S&P 500 below is a great example of how basic price levels such as prior highs and lows usually act as as substantial points of resistance and support:

As you can see, the Nasdaq Composite also stalled after probing just above its prior high from June 15:

Obviously, those highs are the same areas of resistance to watch over the next few days. If the S&P 500 or Nasdaq manages to close above its June 15 high, it would also result in the index breaking out above its six-week downtrend line. Note that yesterday’s gains caused both the S&P and Nasdaq to finish just below their respective downtrend lines that began with the highs of May 10. In the S&P, a breakout above its daily downtrend line would also result in a recovery back above the 200-day moving average. The major indices are certainly within striking distance of breaking their downtrend lines, but it is important to not “jump the gun” and begin buying ETFs while the downtrends in both the S&P and Nasdaq remain in effect. As for shorts, we are holding off on new entries for now.

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Today’s Watchlist:

There are no new setups for today, although we are now long three open positions.

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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:

Open positions (coming into today):
TTH long (700 shares from June 15 entry) –
bought 29.09, stop 28.11, target new high (will trail stop), unrealized points = + 0.26, unrealized P/L = + $182

GLD long (250 shares from June 21 entry) –
bought 58.61, stop 55.60, target 63.40, unrealized points = (0.28), unrealized P/L = ($70)

TLT long (320 shares from June 2 entry) –
bought 84.70, stop 83.85, target 89.45, unrealized points = (0.63), unrealized P/L = ($202)

Closed positions (since last report):

(none)

Current equity exposure ($100,000 max. buying power):

$62,029

Notes:


Per intraday e-mail alert, we bought GLD yesterday. Stop and target prices listed above. The short setup in IYT did not trigger and is no longer valid. As such, it has been removed from our watchlist.

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Edited by Deron Wagner,
MTG Founder and
Head Trader