The previous day’s weakness carried over into yesterday morning, causing stocks to dip lower on the open, but they quickly found support. The bulls arrived after the first thirty minutes of trading, enabling the major indices to recover some of their prior day’s losses. The Nasdaq Composite gained 0.7%, the S&P 500 rallied 0.6%, and the Dow Jones Industrial Average advanced 0.4%. The small-cap Russell 2000 and S&P Midcap 400 indices were higher by 0.4% and 0.7% respectively. Bullish divergence in the tech sectors, particularly the Semiconductor Index ($SOX), enabled the large-cap Nasdaq 100 Index to outperform with a 1.0% gain (more on that below). Each of the major indices closed near their highs of the session, although the intraday uptrends were not very steady.
Turnover was mixed. Total volume in the NYSE receded 4% below the previous day’s level, but volume in the Nasdaq ticked 2% higher. The Nasdaq’s gain on higher volume caused the index to register a bullish “accumulation day.” However, volume was not much greater than during the previous session’s loss on higher volume. Advancing volume in the NYSE exceeded declining volume by a little more than 2 to 1. The Nasdaq ratio was positive by nearly 3 to 1.
The superstar of yesterday’s show was undoubtedly the $SOX Index, which rocketed 3.0% higher! Since the action in most other sectors was relatively subdued, it was quite apparent that institutional money was rotating into the semis. Since June 15, we have been monitoring the “bull flag” that was forming on the chart of the Semiconductor HOLDR (SMH), waiting for a proper re-entry point. That came yesterday, when its clear relative strength and a rally above the upper channel of its hourly downtrend gave us the green light. At 10:32 am EDT, we sent an intraday e-mail alert to subscribers, informing them of our long entry in SMH. Throughout the rest of the session, SMH trended steadily higher, barely pausing each time the major indices pulled back. The hourly chart below illustrates where we bought SMH, while the daily chart that follows shows the strong breakout to a new 52-week high:
On the daily chart above, the dashed horizontal line marks the prior closing high that SMH broke out above. On a pullback, that area should now act as the new support level. If you missed yesterday’s entry in SMH, it’s relatively low risk to buy any minor retracement, just as long as SMH holds above the 38.25 – 38.30 area. Now that SMH is at a new high, we will simply trail a stop below the hourly uptrend line in order to maximize profits.
In yesterday’s commentary, we said that, “. . .the S&P is poised to continue its downward momentum and once again test its 50-day MA. Conversely, the Nasdaq could attempt to brush off yesterday’s weakness and grind its way back to the high.” As anticipated, the S&P 500 indeed tested its 50-day MA in the morning, while the Nasdaq 100 Index subsequently recovered all of Wednesday’s loss and closed just shy of its high. Strength in the $SOX caused the tech-heavy Nasdaq 100 to outperform the more diversified Nasdaq Composite. On the daily chart below, notice how yesterday’s low in the S&P 500 coincides with support of the 50-day moving average. It was the S&P 500’s third bounce off its 50-day moving average this month:
Although the S&P held firm at its 50-day MA and moved back above its 20-day EMA, the index retraced less than 50% of the previous day’s loss. Therefore, it still has a lot of overhead supply to contend with. As long as it holds above its 50-day MA, there’s every reason to believe the S&P will keep on “doing its thing” and eventually grind its way back to another record high. However, a firm close below yesterday’s low, and hence the 50-day MA, would change the intermediate-term bias to bearish. Both the Russell 2000 and S&P Midcap 400 also tested their 50-day MAs yesterday, so be on alert for potential breaks of support in those indexes as well. Short sale opportunities could quickly present themselves if the S&P 500, Russell 2000, and/or S&P Midcap 400 indices plunge below their 50-day MAs.
QQQQ, which tracks the Nasdaq 100 Index, reversed all but two cents of the previous day’s loss and closed just a few cents below its six-year high. Whereas the S&P 500 had overhead resistance of its 20-day EMA, QQQQ found underlying support at its 20-day EMA. Quite simply, the strong institutional money flow into the tech stocks is enabling the Nasdaq 100 to basically ignore the other indexes:
QQQQ missed triggering our long entry on June 20, but we are once again stalking it for a potential buy above the high of its range. As per yesterday’s mini-lesson, be sure to give your entry price in QQQQ enough “wiggle room” above its high to prevent falling victim to another failed breakout attempt. If making a decision between buying QQQQ and SMH, the latter is definitely showing more strength. But if you already bought SMH alongside of us yesterday, snagging some shares of QQQQ over the high is a good supplemental play. The one caveat, of course, is the high likelihood of a failed breakout in QQQQ if one or more of the other major indexes breaks down below yesterday’s lows (and their 50-day MAs).
There are no new setups in the pre-market today. As per above, we are stalking QQQQ for a potential long entry if it breaks out. However, we prefer to first assess general market conditions in the other indexes today before making a decision to buy it. As always, we will send an intraday e-mail alert if we enter QQQQ or anything else.
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):
SMH long (450 shares from June 21 entry) – bought 38.30 (avg.), stop 37.62, target new high (will trail stop), unrealized points = + 0.55, unrealized P/L = + $248
EWO short (450 shares total – 300 shares from June 6, 150 shares from June 20) –
sold short 40.68 (avg.), stop 41.13, target 37.75, unrealized points = + 0.43, unrealized P/L = + $194
XME short (300 shares total – 200 from June 11, 100 from June 20) –
sold short 63.62 (avg.), stop 64.38, target 58.90, unrealized points = (0.16), unrealized P/L = ($48)
Closed positions (since last report):
Current equity exposure ($100,000 max. buying power):
Per intraday e-mail alert, we bought SMH at 38.26, then added at 38.44. Average price on full position is shown above. The SMH stop has also been tightened slightly. Later in the day, we sent another alert informing of a tighter stop in XME, which was not hit. Due to a close right at the 50-day MA, we raised the XME stop a bit higher than yesterday’s alert, but it’s still lower than our original stop. Risk on the trade is now limited to about $200.
Edited by Deron Wagner,
MTG Founder and