Commentary:
After spending most of the day drifting in a narrow, sideways range, stocks broke out to new intraday highs in the afternoon, but selling pressure in the final thirty minutes of trading caused the major indices to close modestly lower. Both the S&P 500 and Dow Jones Industrial Average slipped 0.1%, while the Nasdaq Composite lost 0.3%. The small-cap Russell 2000 Index fell 0.6%. Relative strength was found in the S&P Midcap 400, which eked out a gain of 0.1%. Each of the broad-based indexes finished just below the middle of their intraday ranges.
Total volume in the NYSE was 4% lower than the previous day’s level, while volume in the Nasdaq declined by 7%. Given the Nasdaq’s recent string of “distribution days,” yesterday’s loss on lighter volume was a welcome change. If turnover subsequently rises on the market’s next “up” day, it would be even more positive. Still, the fact remains that the Nasdaq has flashed three days of higher volume selling within the past six sessions, and just two days of gains, both on lower volume. Market internals were negative by just a fractional margin. In both exchanges, declining volume edged out advancing volume by a ratio of 1.1 to 1.
One ETF that is coming into support of a long-term uptrend line is the StreetTRACKS Gold Trust (GLD). On both a short and intermediate-term basis, GLD looks bearish because it formed a “lower high” on its daily chart, then rolled over and broke support of its 50-day moving average. However, a look at the long-term weekly chart shows that GLD has moved down to support of the lower channel of its primary uptrend:
In the case of well-established, long-term trends, we must always assume the trendlines will remain intact until the stock or ETF proves otherwise. Therefore, even though the short and intermediate-term picture doesn’t look too good, GLD may be in a prime position for accumulation on a long-term basis. If you’ve been wondering where to find an ideal entry price in GLD for your long-term portfolios, such as an IRA or other retirement account, this may be the place. As always, be sure to keep protective stops in place, just in case the two-year uptrend decides to run out of gas.
The iShares Silver Trust (SLV) is correlated to the action of GLD, but has been showing more relative weakness. Not only is it below its 50-day MA, but SLV also closed yesterday below its 200-day MA. Nevertheless, it too has dropped to support of its long-term uptrend line:
It may be worth keeping an eye on SLV, but GLD is probably the better bet of the two. At times, silver shows relative strength to gold, but this has not been the case recently. You can even see a bearish “head and shoulders” formation that has formed on the weekly chart of SLV since the beginning of the year. With SLV still above its long-term uptrend line, we are not yet advocating a short sale. Rather, we are simply illustrating that GLD has the better pattern of the two.
As for the broad market, nothing has technically changed. Both the S&P and Dow remain within firm support of their uptrending channels, while the Nasdaq remains below its former uptrend and is clinging to its 20-day EMA. Stocks have been pretty choppy, moving one direction in the morning, then reversing in the afternoon, only to repeat the process the following day. In this type of environment, we suggest steering clear of the broad-based ETFs such as SPY and QQQQ. Instead, concentrate on ETFs that track specific industry sectors. Transportation (IYT) and Pharmaceuticals (PPH) are two such ETFs that are poised to break out of their bases and resume their primary uptrends.
Today’s Watchlist:
There are no new setups in the pre-market today, although we may re-enter PPH if the market acts well. As always, we will send an intraday e-mail alert if we do so.
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:
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Open positions (coming into today):
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XRT short (600 shares from May 4 entry) – sold short 42.90, stop 43.79, target 40.70, unrealized points = + 0.26, unrealized P/L = + $156
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $25,584
Notes:
No changes to the open position.
Edited by Deron Wagner,
MTG Founder and
Head Trader