Commentary:
After gapping higher on the open, the stock market moved lower throughout the first half of yesterday’s session, but an afternoon recovery enabled the major indices to finish fractionally higher. The Nasdaq Composite, down as much as 0.6% intraday, closed with a gain of less than 0.1%. Both the S&P 500 and Dow Jones Industrial Average edged higher by the same amount. Small and mid-cap stocks outperformed again. Both the Russell 2000 and the S&P Midcap 400 again closed at record highs, rallying 0.4% and 0.5% respectively.
Total volume in the NYSE increased by 5%, while volume in the Nasdaq was 12% higher than the previous day’s level. If the S&P and Nasdaq would have finished higher, a bullish “accumulation day” would have registered, but a gain of less than 0.1% is usually not indicative of institutional buying. Upon closer analysis of the intraday turnover levels, volume stayed about the same during the morning selloff as during the afternoon reversal. As such, we can not directly infer whether the bulls or bears had the upper hand. Market internals were mixed. In the NYSE, advancing volume exceeded declining volume by a margin of nearly 3 to 2, but the Nasdaq ratio was negative by 1.3 to 1.
Because the market has been grinding higher without a significant correction, most ETFs are up against resistance of their upper trend channels. However, we found a few that are not overly extended and could be setting up for potential long entries. After the closing bell, the stock of Cisco Systems (CSCO) was trading higher in the after-hours market upon receiving a positive reaction to its quarterly earnings report. If Cisco maintains that strength into today’s open, it could enable the iShares Networking Index (IGN) to gap up and break out above a 2-month sideways consolidation. The blue horizontal line on the weekly chart below marks the high of the consolidation. A rally above that level is the trigger for long entry:
In the January 31 issue of The Wagner Daily, we illustrated how the Pharmaceutical HOLDR (PPH) was setting up for long entry above resistance of its two-week downtrend line. It broke out that same day, then rallied to near our short-term price target of its January 19 high only two days later. On February 2, we mentioned that short-term momentum traders may wish to lock in profits on PPH by selling into strength. But rather than pulling back off the high, it has been consolidating nicely, forming a mini “cup and handle” chart pattern in the process. If the Pharmaceutical sector continues to show relative strength, PPH should break out above its February 2 high within the next few days. If it does, PPH will again present an ideal entry point on the break out to a new 52-week high:
Finally, we continue to stalk the CurrencyShares Euro Trust (FXE) for potential long entry above its two-month downtrend line. As illustrated a few days ago, FXE has been correcting off its highs in the intermediate-term, but the long-term uptrend remains firmly intact. The blue dashed line on the weekly chart below marks support of its long-term uptrend, while the red descending line illustrates resistance of its intermediate-term downtrend:
When a chart shows opposing trends, such as the long-term uptrend on FXE combined with the intermediate-term downtrend, the longer time horizon usually prevails. Therefore, a rally above the intermediate-term downtrend line should lead to a resumption of the long-term uptrend. If FXE breaks out, our initial upside price target will be resistance of the December 8 high. However, the lack of overhead supply increased the odds that it will also bust out to a new record high.
Today’s Watchlist:
FXE – CurrencyShares Euro Trust
Long
Shares = 400
Trigger = above 130.62 (above resistance of 2-month downtrend line. . .seen more clearly on a daily chart)
Stop = 129.04 (below the 20-day MA)
Target = 133.70 (resistance of Feb. 8 high)
Dividend Date = n/a
Notes = See commentary above for explanation of the setup.
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):
-
GLD long (300 shares from Jan. 23 entry) –
bought 63.90, stop 62.31, target 69.30, unrealized points = + 0.89, unrealized P/L = + $267
QID long (400 shares total – 300 shares from Jan. 22 entry, 100 shares from Jan. 31 add) –
bought 53.23 (avg.), stop 51.10, target 58.35, unrealized points = (0.43), unrealized P/L = ($172)
Closed positions (since last report):
-
(none)
Current equity exposure ($100,000 max. buying power):
- $40,557
Notes:
The GLD stop has been trailed slightly higher.
Edited by Deron Wagner,
MTG Founder and
Head Trader