Commentary:
A 6.5% drop in the Shanghai stock market caused the major indices to gap lower on the open, but the broad market promptly reversed, causing stocks to trend higher throughout the session. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average each posted identical gains of 0.8%. The S&P Midcap 400 Index showed relative strength by powering 1.1% higher, while the small-cap Russell 2000 advanced 0.7%. After several failed attempts over the past week, the S&P 500 finished at a new all-time closing high. Each of the major indices settled at their intraday highs, indicating institutional support into the close.
Total volume in the NYSE increased by 10%, as volume in the Nasdaq surged 20% above the previous day’s level. The solid gains on higher turnover caused both the S&P and Nasdaq to register a bullish “accumulation day” that pointed to buying by mutual funds, hedge funds, pension funds, and other institutional players. Furthermore, volume in both exchanges moved back above average levels. Market internals were solid. Advancing volume in the NYSE exceeded declining volume by a margin of nearly 7 to 2. The Nasdaq ratio was positive by just over 2 to 1.
In yesterday’s Wagner Daily, we speculated as to whether or not the S&P 500 would hold above support of its 20-day exponential moving average. Though it tested support of the line in three of the past four days, it again managed to once again do so. The closing price of 1,530 also was enough to erase the prior historical closing high of 1,527 that has been a pivotal area of resistance over the past week:
As you can see, the S&P is still a few points below last week’s intraday highs, but just a little pop in today’s session would confirm the fresh closing high.
The Nasdaq Composite has been more indecisive in recent weeks, but it managed to set a new six-year closing high. Like the S&P 500, it still has a little work to do in order to move above last week’s intraday highs, but just a small amount of overhead supply remains:
As for the ever-resilient Dow, need we say that the blue-chip index again closed at a new record high? It has been an impressive six weeks since the Dow Jones Industrial Average even touched its 20-day EMA, let alone even coming near its 50-day MA. With absolutely no horizontal price resistance in its path, it won’t take a lot of buying pressure to enable the Dow to keep setting new highs:
The S&P Midcap 400 and small-cap Russell 2000 indices have lagged behind the other primary stock market indexes over the past several months, but they seem to be joining the party now as well. Both indexes managed to conclude the session at historical closing highs, though each one remains just below last week’s intraday highs.
True to our expectations, the S&P managed to trend all the way to a fresh record closing price before sustaining any kind of substantial price correction. When a benchmark index such as the S&P is trading in close proximity to such a closely-watched resistance level, it’s almost a given that traders will test the level by closing above it at least once. What happens next will be of paramount importance. The index could continue zooming to successive new highs in the coming weeks, just as the Dow did upon setting the milestone. Conversely, institutions could just as easily use the bullish accomplishment as a good excuse to take well-deserved profits from the stock market’s amazing rally off its March lows. Rather than speculating on the likely outcome, the easiest and most profitable situation is to simply trade what we see, not what we think.
Today’s Watchlist:
FBT – First Trust Biotech
Long
Shares = 600
Trigger = 25.74 (above the downtrend line and May 23 high)
Stop = 25.18 (below yesterday’s low and the 20-day EMA)
Target = new high (will trail stop)
Dividend Date = n/a
Notes =
This setup from yesterday did not yet trigger, but remains on our watchlist going into today.
Although FBT has a low average daily volume, please remember this is largely irrelevant with ETFs. Unlike individual stocks, in which liquidity can greatly affect how a stock trades, all exchange traded funds are synthetic instruments. As such, the amount of average daily volume that an ETF trades is, for the most part, irrelevant. Even if a particular ETF had no buyers or sellers for several hours, the bid and ask prices would continue to move in correlation with the market value of the ETF that is derived from the prices of the underlying stocks. An ETF with a low average daily volume may sometimes have slightly wider spreads between the bid and ask prices, but you can simply use limit orders if you prefer. We trade for points, not pennies, so paying a few cents more on occasion is not a big deal.
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):
- FXI short (100 shares from May 25 entry) – sold short 111.91, stop 115.85, target 100.30, unrealized points = + 0.78, unrealized P/L = + $78
XME short (150 shares from May 25 entry) – sold short 64.10, stop 66.71, target 57.70, unrealized points = (1.62), unrealized P/L = ($243)
Closed positions (since last report):
-
(none)
Current equity exposure ($100,000 max. buying power):
- $20,971
Notes:
No changes to the open positions above. The FBT setup from yesterday did not yet trigger.
Edited by Deron Wagner,
MTG Founder and
Head Trader