Commentary:
The major stock market indexes lethargically moved in a narrow, horizontal range throughout yesterday before finishing flat to modestly lower. The Nasdaq Composite was unchanged in the quiet session, the S&P 500 slipped 0.1%, and the Dow Jones Industrial Average declined 0.2%. Both the small-cap Russell 2000 and S&P Midcap 400 indices lost 0.2%. The S&P and Dow both settled just below their previous day’s lows, but the Nasdaq continued to show a bit of relative strength by closing near the middle of the prior session’s range.
Turnover fell sharply across the board. Total volume in the NYSE dipped 40% below the previous day’s level, while volume in the Nasdaq receded 30%. Granted, the “quadruple witching” expiration of options inflated volume levels the previous day. Yet, it was still the lightest volume day in the NYSE of the past three weeks. In both exchanges, declining volume marginally exceeded advancing volume.
The Oil ($XOI) and Oil Service ($OSX) indexes outperformed the broad market by posting their fourth straight day of gains, closing higher by 0.3% and 0.4% respectively. Semiconductors ($SOX) and Internets ($GIN) were the only other major industry sectors to advance yesterday. Although it has lagged the recent gains of the oil and oil service stocks, the U.S. Oil Fund (USO) is now poised to surge higher as well. USO, which is comprised of a variety of crude oil futures contracts, broke out above horizontal price resistance and closed above its 200-day moving average for the first time since last year’s correction began. Based on these two factors, it appears a significant upward trend reversal has begun to take place in USO:
As you can see, USO closed above its first level of horizontal price resistance near the $52 level. This correlated to a break above the 200-day moving average as well. While this is certainly bullish, resistance of the prior high still remains just over the $54 level. Confirmation of the bullish trend reversal would occur when USO firmly closes above that level. Buying partial share size here, then adding when USO rallies above the $54.20 level, is one possible way to play this setup.
When trading USO, note that it only loosely follows the actual price of the crude oil commodity. In order to supposedly reduce risk, USO is always invested in a mix of short, medium, and long-term crude oil futures contracts. In recent times, this has caused USO to show slight relative weakness to the actual Crude Oil Continuous Contract. The iPath Goldman Sachs Crude Oil Index (OIL) and the PowerShares Dynamic Oil Fund (DBO) are two similar alternative ETFs, but USO is definitely the most popular (and highest volume) of the three.
If the S&P 500 pulls back further today, expect the first area of support to be found near the 20-day exponential moving average. Currently, that stands at 1,516, which also converges with support of the June 11 high (formerly resistance). If the index would happen to break that level, the 50-day moving average is standing guard at 1,500. Obviously, the 50-day MA certainly “did its thing” at providing support the last time. Resistance is found for the next 9 points, up through the June 4 high of 1,540:
The Dow has a similar daily chart pattern to the S&P. Its 20-day EMA should provide support at the 13,479 area, while the 50-day MA is at 13,243. Resistance of the prior high is at 13,692, about 80 points above yesterday’s close. Consider setting price alerts for all these levels so that you are instantly notified of technical levels that may trigger volatility in the Dow (and S&P). Until the indexes touch either these support or resistance levels, trading is likely to remain quiet. As for the Nasdaq, it’s still at a new six-year high. A break of yesterday’s low, however, will put the index in danger of a false breakout.
Today’s Watchlist:
There are no new setups in the pre-market today. However, we are stalking USO for potential long entry. Rather than listing a fixed trigger price in the pre-market, we will first observe today’s price action, then send an intraday e-mail alert if/when we enter it. Assuming the market holds last week’s gains, additional new long setups (such as SMH) should start presenting themselves after a few days of consolidation.
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):
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EWO short (300 shares from June 6 entry) – sold short 40.77, stop 41.28, target 37.75, unrealized points = (0.02), unrealized P/L = ($6)
XME short (200 shares from June 11 entry) – sold short 63.55, stop 65.82, target 58.90, unrealized points = (0.30), unrealized P/L = ($60)
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $25,007
Notes:
As with last Friday, there were again several rogue trades on the ARCA ECN that were executed at the open, just above our stop. These trades above the actual bid/ask market price did not trigger our stop order, as confirmed by intraday e-mail alert, so we remain short with the same stop price. Use caution with entering mechanical stops in the pre-market. If possible, use time conditional orders that go live after the first 15 to 20 minutes.
Edited by Deron Wagner,
MTG Founder and
Head Trader