Commentary:
Another choppy day left most stocks little changed ahead of this week’s meeting of the Federal Reserve Board. The major indices broke out to new intraday highs just after mid-day, promptly fell to new lows only an hour later, then recovered slightly in the final two hours of the session. The S&P 500 lost 0.1% for the second consecutive day, while the Nasdaq Composite gained 0.2%. The Dow Jones Industrial Average was unchanged, but the small-cap Russell 2000 and S&P Midcap 400 indices showed relative strength again, rallying 0.6% and 0.4% respectively.
Total volume in the Nasdaq declined by 4%, but turnover in the NYSE was 2% higher than the previous day’s level. Although the S&P 500 declined on higher volume, both the small percentage of the gain and the minimal volume increase enabled the S&P to avert a bearish “distribution day.” The Nasdaq’s lower volume gain tells us that institutions remained largely on the sidelines. Not surprisingly, market internals were mixed. Declining volume in the NYSE marginally exceeded advancing volume by a ratio of 1.1, but the Nasdaq was positive by a margin of 1.3 to 1.
We are presently long the StreetTRACKS Gold Trust (GLD), which is consolidating above an 8-month downtrend line, but the iShares Silver Trust (SLV) is setting up for a low-risk entry point as well. Five days ago, SLV gapped up and broke out above resistance of both its 50-day moving average and its prior high from January 3. Since then, it hasn’t done much, but has been holding above the breakout level:
As long as SLV remains above convergence of its 50-day MA and January 3 high, the setup offers a good risk/reward ratio. If it falls back below the 50-day MA by more than a point or so, you can quickly sell the position for a small loss. However, the upside potential is much greater than a than the one-point risk. If the breakout holds, it could eventually make a run at its prior high from December 2006. When the dollar amount of the potential profit is much greater than the capital risk, a trade is said to have a highly positive risk/reward ratio. By focusing on such trades, one can still realize a substantial bottom-line profit, even if the accuracy rate of the picks is not very high. In order to increase the odds of SLV breaking out above its January high, consider waiting for a breakout above its hourly downtrend line. A rally above that level should tip the odds in favor of further upside. The downtrend line is illustrated on the 60-minute chart below:
As for the broad market, nothing has changed on a technical level since yesterday’s analysis of the major indices. Both the S&P and Dow are holding just above their 50-day moving averages, while the Nasdaq closed a hair below. The Feds kick off a two-day policy meeting today, the results of which will be announced tomorrow afternoon. Even though the FOMC is widely expected to leave interest rates unchanged, we don’t anticipate a lot of action ahead of Wednesday’s announcement. Nevertheless, remember to trade what you see, not what you think!
Today’s Watchlist:
There are no new setups in the pre-market today. We’re stalking the Dow and/or S&P 500 for potential short entries, but only if they confirm their trend reversals by breaking below their 50-day MAs. As always, we will promptly notify you of any spontaneous trade entries via intraday e-mail alert.
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):
-
QID long (300 shares from Jan. 22 entry) –
bought 52.89, stop 50.49, target 58.35, unrealized points = + 0.83, unrealized P/L = + $249
GLD long (300 shares from Jan. 23 entry) –
bought 63.90, stop 61.79, target 69.30, unrealized points = (0.13), unrealized P/L = ($39)
Closed positions (since last report):
-
(none)
Current equity exposure ($100,000 max. buying power):
- $35,247
Notes:
Neither e-mail alert for SDS or the QID addition triggered yesterday, and both are canceled for now. We will send a new alert if we enter any new trades today. No changes to the open positions.
Edited by Deron Wagner,
MTG Founder and
Head Trader