Commentary:
As anticipated, volume dropped ahead of Wednesday’s Independence Day holiday, but it wasn’t a flat session. The second half of 2007 got off to a strong start, as each of the major indices posted strong gains. Both the S&P 500 and Nasdaq Composite rallied 1.1%, while the Dow Jones Industrial Average ticked 0.9% higher. The small-cap Russell 2000 and S&P Midcap 400 indices were higher by 1.4% and 1.3% respectively. Nearly all of the market’s gains occurred in the first hour of trading. Stocks subsequently traded in a narrow, sideways range before finishing near their intraday highs.
The only negative of yesterday’s solid results was the lack of institutional buying support. Total volume in the NYSE receded 17%, while volume in the Nasdaq came in 15% below the previous day’s level. Volume in both exchanges was well below average levels. A decent surge in turnover would have confirmed the bullish advance, but it’s not surprising that trading was light ahead of today’s shortened session and tomorrow’s holiday. Market internals in the S&P and Dow were the strongest we’ve seen in a while. Advancing volume in the NYSE exceeded declining volume by a margin of more than 5 to 1. The Nasdaq ratio was positive by 5 to 2.
In yesterday’s commentary, we said that “If the Nasdaq manages to leap to a new closing high this week, above the 2,626 level, it will probably pull the discombobulated S&P back above its 50-day MA.” That’s exactly what happened yesterday. The Nasdaq Composite’s close of 2,632 was still below the intraday high of June 20, but it marked a fresh multi-year closing high. After five straight failed attempts to do so, the S&P closed back above its 50-day MA. Still, the index remains 1.3% below its high, so we’re not “out of the woods” yet. As we’ve been saying nearly every day for the past several weeks, the best and lowest risk buying opportunities clearly remain in the Nasdaq.
With the market closing three hours early today, there probably won’t be much happening beyond the first hour. Therefore, we’ll wait until Thursday, after the holiday has passed, to re-assess which industry sectors are showing the best chart patterns and relative strength. In the meantime, let’s keep an eye on the S&P to make sure it holds above its 50-day MA for more than a day. The Nasdaq 100 Index Tracking Stock (QQQQ) may be in play on the long side if its breakout holds into Thursday’s session.
NOTE: The stock markets will close early, at 1:00 pm EDT on Tuesday, July 3. On Wednesday, July 4, the markets will be closed the full day. As such, The Wagner Daily will not be published on July 4. Regular publication will resume on Thursday, July 5. Enjoy the holiday with your friends and family!
Today’s Watchlist:
There are no new setups in the pre-market today. If QQQQ holds near yesterday’s high, we will consider buying the breakout on Thursday. However, we are reluctant to enter new positions ahead of the holiday.
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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EWO short (450 shares total – 300 shares from June 6, 150 shares from June 20) –
sold short 40.68 (avg.), stop 40.83 (see note below), target 37.75, unrealized points = + 0.05, unrealized P/L = + $23
KCE short (200 shares from June 29 entry) – sold short 69.40, stop 71.28, target 65.40, unrealized points = (0.26), unrealized P/L = ($52)
XLE short (200 shares from June 29 entry) – sold short 69.38, stop 71.18, target 65.20, unrealized points = (0.83), unrealized P/L = ($166)
Closed positions (since last report):
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** SDS long (250 shares from June 22 entry) –
bought 52.91 (avg.), sold 51.61, points = (0.87) (including dividend), net P/L = ($223)
Current equity exposure ($100,000 max. buying power):
- $46,258
Notes:
We will be using the MTG Opening Gap Rules to manage the EWO position. Since it closed so close to its stop, this gives us a bit of wiggle room, but without large risk. The stop will either become 10 cents over the 20-minute high OR the original stop of 40.83, whichever is greater.
SDS hit its stop five minutes after the regular close of trading. Broad-based ETFs such as SDS typically close their regular session at 4:15 ET instead of 4:00 ET.
** On June 26, SDS traded “ex-dividend” with a distribution of 0.43 per share, payable on July 2. When ETFs pay dividends during our holding period, we automatically lower the original stop and target prices by the amount of the dividend. The amount of the dividend is also added to our “unrealized points” and “unrealized gains” figures.
Edited by Deron Wagner,
MTG Founder and
Head Trader