The Wagner Daily

Commentary:

The major indices drifted through yesterday’s session in a narrow, sideways range before finishing fractionally higher. The S&P 500, Nasdaq Composite, small-cap Russell 2000, and S&P Midcap 400 indices all gained 0.1%. Blue chips showed a bit of relative strength, enabling the Dow Jones Industrial Average to advance 0.3%. Each of the broad-based stock market indexes closed just above the middle of their tight intraday ranges.

As anticipated, volume returned to the markets yesterday, but turnover in both exchanges still remained below average levels. Total volume in the NYSE was 7% higher than the previous day’s level, while volume in the Nasdaq increased by 12%. Market internals were basically flat. Since the gains in the S&P and Nasdaq were miniscule, yesterday did not qualify as a bullish “accumulation day.” Although traders began returning from their vacations, they apparently weren’t too anxious to jump back in the markets ahead of the commencement of earnings season. Expect turnover to pick up as the week progresses.

The Gold and Silver Index ($XAU) was again one of the strongest sectors in yesterday’s dull session. The $XAU rallied another 1.1%, dragging the Market Vectors Gold Miners ETF (GDX) along with it. In yesterday’s commentary, we said we were looking for a potential long entry if GDX pulled back a bit. However, it gapped higher on the open, then oscillated in a sideways range. From here, GDX may form a “bull flag” formation over the next several days. The breakout from such a pattern would provide us with another ideal entry point. Alternatively, a retracement down to support of its hourly uptrend line would also represent a low-risk long entry trigger. This is illustrated below:

As you can see, there are both primary and secondary uptrend lines. The primary uptrend line (blue) provides the lowest risk entry point because the longer the trendline, the more likely the trend is to continue in that direction. However, if GDX remains strong enough, there is a good possibility it won’t retrace that low before rushing to new highs. Therefore, a pullback to the secondary uptrend line (red) provides us with another entry point. As it often does, notice how the 20-period EMA converges with support of the secondary uptrend line. If buying at that level, there is a slightly higher risk that GDX will dip beyond support of the secondary trendline before reversing higher, but there’s also a much better chance of getting an entry in the first place. When confronted with two different trendlines on the hourly chart, one can buy a partial position on the retracement to the secondary trendline, then add to the position when it subsequently rallies to a new high. If, however, it retraces below the secondary trendline, all the way down to the primary trendline, wait for at least a bounce back up to your initial point of entry before buying the remaining shares. Otherwise, you are adding to a losing position. These are just a few of the ways that traders can intelligently buy stocks and ETFs that have already broken out, but without impatiently chasing them and buying at the wrong time.

The iShares Nasdaq Biotech Fund (IBB) broke out above its recent consolidation and 20-day EMA yesterday morning, triggering our pre-determined long entry. However, we scratched the trade when it sold off and filled the opening gap just before mid-day. It still could take off from here, but the move was not yet confirmed by the $BTK Index. We continue stalking IBB for a potential re-entry point over yesterday’s high.

Renewed strength in Alternative Energy stocks, specifically solar power, has enabled several corresponding ETFs to blast off over the past several days. The PowerShares WilderHill Clean Energy (PBW) and the Market Vectors Global Alternative Energy (GEX) are two such examples. We’ll take a look at a few charts in this sector within the next several days, as these ETFs are likely to consolidate from here.

In yesterday’s Wagner Daily, we said the following, “The major indices are still telling a tale of two markets. The Nasdaq continues to post new multi-year highs, making QQQQ buyable on a light to moderate pullback. Conversely, both the S&P and Dow remain stuck below resistance of their prior highs from early June. Neither index is above its 20 and 50-day MA by a wide margin.” As yesterday’s action was uneventful, the situation remains the same going into today. Looking at the daily charts of both the S&P 500 and DJ Industrials below, you will see it’s time for these indexes to make a decision:

With both the S&P and Dow just a few points below their all-time highs, be prepared for erratic volatility as traders place their bets on both sides of these pivotal resistance levels. Conversely, both the Nasdaq indices have much cleaner charts. They could withstand a moderate pullback and still remain above their recent breakout levels. Echoing yesterday’s closing commentary, one of two major scenarios is likely to occur this week. Either the Nasdaq stands firm and pulls the S&P and Dow back to new highs OR the laggard S&P and Dow indexes fall back down below their 50-day MAs, pulling the Nasdaq lower as well. With breakouts among most leading stocks holding firm, the balance of power remains with the bulls. Just watch out for major earnings surprises that have the power to rapidly change the situation.

Today’s Watchlist:

GDX – Market Vectors Gold Miners ETF
Long

Shares = 200
Trigger = BELOW 40.27 (pullback to secondary hourly uptrend line)
Stop = 38.28 (below support of 20, 50, and 200-day MAs)
Target = new high (will trail stop)
Dividend Date = December, 2007

Notes = See commentary in the July 9 issue of The Wagner Daily for complete explanation of the setup. Note that this is a pullback entry, rather than the typical breakout above a given price. If GDX does NOT pullback to the trigger price, assume we are not yet buying UNLESS we send intraday e-mail alert on the contrary.

IBB – iShares Nasdaq Biotech
Long

Shares = 200
Trigger = 79.66 (above yesterday’s high)
Stop = 77.56 (below the June 29 low)
Target = 83.20 (resistance of May high)
Dividend Date = December, 2007

Notes = This setup triggered yesterday, but we scratched the trade. Nevertheless, we continue stalking it for a potential re-entry today. See commentary in the July 9 issue of The Wagner Daily for complete explanation of the setup.

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):

unrealized P/L = ($23)

Closed positions (since last report):

net P/L = ($32)

Current equity exposure ($100,000 max. buying power):

$23,855

Notes:

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Edited by Deron Wagner,
MTG Founder and
Head Trader

Deron Wagner

Deron Wagner is a professional trader, author of several ETF trading books, and the Founder of Morpheus Trading Group. Since 2002, he has been sharing his proven swing trading strategy with thousands of traders around the world. He has appeared on CNBC, ABC, and Yahoo! Finance Vision television networks, and is a frequent guest speaker at various global investing conferences.