The stock market shook off early weakness yesterday morning, enabling the major indices to post their third consecutive day of gains. The Nasdaq Composite gapped 0.7% lower on the open, but finished with a 0.4% gain. Both the S&P 500 and Dow Jones Industrial Average also recovered from opening losses to close 0.2% higher. Small cap stocks showed relative strength that helped the Russell 2000 advance 0.8%. The S&P Midcap 400 secured a similar gain of 0.6%. Despite the broad-based gains, yesterday’s intraday action was a bit choppy and erratic. The S&P and Nasdaq moved into positive territory two hours before the close, but whipped around with several false breakdowns and breakouts in the first half of the day.
Turnover was higher in both exchanges yesterday, enabling both the S&P and Nasdaq to register their second straight “accumulation days.” Total volume in the NYSE increased by 6%, while volume in the Nasdaq was 2% greater than the previous day’s level. After suffering several days of distribution last week, it’s positive to see a few sessions of higher volume gains, albeit only modestly increasing volume. In the Nasdaq, advancing volume exceeded declining volume by a margin of 2.2 to 1. The NYSE ratio was positive by only 1.3 to 1. Like the previous day, stronger market internals in the Nasdaq matched its better gains as well.
Since we now have five open positions, let’s take an updated technical look at each of them. Although it gave us a rough time for several days, the Oil Service HOLDR (OIH) is now looking pretty good. It closed yesterday above its prior high from October 26 and is presently showing an unrealized gain of nearly 8 points (6.1%) since our re-entry on November 2:
On the chart above, notice that yesterday’s volume in OIH was also pretty strong. Because ETFs are synthetic instruments that do not operate on an auction system, high volume will not necessarily drive the price of an ETF higher. It does, however, indicate that institutions were buying shares of it. If you look at the individual stocks that comprise the Oil Service Index ($OSX), you will also notice that many of them had better than average volume as well. Because OIH closed above its prior high, we expect it to make a run at its 200-day moving average (the orange line) in today’s session. Our original profit target is just beyond the 200-day MA (142.10), but we have trailed our stop to just below the middle of yesterday’s range (137.29) in order to lock in profits if the breakout fails.
The StreetTRACKS Gold Trust (GLD), which we began buying on October 25, is our second most profitable open position:
As you may recall, we bought the first half of the position when it popped back above its 20-day moving average. We subsequently bought the second half of the position when it broke through its 200-day moving average on October 30. More importantly, the breakout above the 200-day MA coincided with a breakout above the “neckline” of the inverse “head and shoulders” chart pattern we detected (see the October 25 issue of The Wagner Daily. On November 3, we sold half of our GLD position for a quick gain of more than 3 points, with the intention of buying back all or part of those shares on the first correction. Specifically, we were looking for a pullback down to the 10-day MA, a level that strong trending stocks and ETFs will typically bounce off of. That anticipated retracement happened yesterday, so we added to our position near the intraday low, about 1.5 points below where we sold the first half of the position. Because we sold partial shares into strength, kept the rest through the pullback, then added to the position again, this is known as “trading around a position.” Managing trades in this manner is a good way to maximize your profits and minimize your risk, but it only works with stocks and ETFs that are showing strong momentum. From here, we expect yesterday’s low to act as support, so we have trailed our stop to just below the 200-day MA (the orange line). Our price target on the full position remains the 64.45 area. Yesterday, the pullback finally came, so we added to our position .
Going into yesterday’s session, we had two other open positions: DB Commodity Index Trust (DBC) and iShares Cohen and Steers Real Estate (ICF). We remain long DBC and short ICF, but both finished within pennies of our original entry points. So far, not much to report on these two positions. Our remaining open position is one that we just entered yesterday, the U.S. Oil Fund (USO):
We originally discussed USO in the November 7 issue of The Wagner Daily, where we illustrated how it was nearing the breakout above its seven-week downtrend line. We began stalking USO for a potential long entry that day, but only bought it into the close yesterday afternoon. Per a real-time e-mail alert to subscribers, we explained that we liked the relative strength and consolidation near the highs in the Oil Sector. Since it has been consolidating in a tight range right at its downtrend line for the past three days, we expected upside momentum to develop in crude oil in the overnight session. Obviously, it remains to be seen whether or not this will happen, but we feel our entry point provided us with a positive risk/reward ratio on the trade. Again, we are NOT calling a bottom in crude oil or USO. Rather, we are merely attempting to profit from a technical bounce from oversold conditions. More than all the others, USO is intended to be only a short-term trade.
There are no new trade setups for today, as we are near the maximum buying power of our $50,000 model account. Instead, we will focus on managing our existing five open positions for maximum profitability.
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):
OIH long (100 shares (half position remaining) from November 2 re-entry) –
bought 132.01, stop 137.29, target 142.10, unrealized points = + 7.90, unrealized P/L = + $790
GLD long (300 shares total – 200 from Oct. 25 & 30 entries, 100 added on Nov. 8) –
bought 59.84 (avg.), stop 60.05, target 64.45, unrealized points = + 1.27, unrealized P/L = + $381
DBC long (700 shares from November 6 entry) –
bought 24.87 (avg.), stop 23.87, target 26.59, unrealized points = + 0.09, unrealized P/L = + $64
USO long (400 shares from November 8 entry) –
bought 53.31, stop 52.07, target 57.85, unrealized points = + 0.09, unrealized P/L = + $36
ICF short (250 shares from November 7 entry) –
sold short 94.23, stop 96.78, target 89.45, unrealized points = (0.08), unrealized P/L = ($20)
Closed positions (since last report):
Current equity exposure ($100,000 max. buying power):
Per intraday e-mail alert, we added to our GLD position on the pullback to support of the 10-day moving average. Recall that we already sold half of the original position near the high, so we bought back half of those shares at a lower price. New average price on the full position is reflected above. We also bought USO into the close, as it was consolidating at the top of the downtrend channel, pointing to good odds of a gap up above resistance today. Note the new stop on OIH as well.
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Click here to view MTG’s past performance results (updated monthly).
Edited by Deron Wagner,
MTG Founder and