Commentary:
Each of the major indices bounced to recover about half of the previous day’s losses, but lower overall volume undermined the reversal attempt. After a relatively flat open, stocks trended higher throughout most of the day before dipping lower at 2:00 pm ET. Buying pressure in the final hour lifted the major indices back to their intraday highs, which is where they settled. Both the S&P 500 and Dow Jones Industrial Average rallied 0.6%, while the Nasdaq Composite gained 0.5%. The small-cap Russell 2000 and S&P Midcap 400 indices were higher by 0.3% and 0.5% respectively.
Turnover declined across the board. Total volume in the NYSE was 7% below the previous day’s level, while volume in the Nasdaq decreased by 8%. Stocks have closed higher in six of the past seven sessions, but volume has receded in each of the six “up” days. Conversely, the sole “down” day coincided with a sharp increase in turnover. Lighter volume “up” days and heavier volume “down” days is the exact opposite action a healthy market should display, as it indicates a lack of institutional buying support. Since mutual funds, hedge funds, pension funds, and other institutions are responsible for approximately 70% of the stock market’s average daily volume, monitoring the daily relationship between the broad market’s price and volume is a great way to know what is happening “under the hood.” Still, despite the recent lack of institutional accumulation, “distribution days” of higher volume selling have been sparse. Although institutions may be taking a break from aggressively buying stocks, they don’t seem particularly interested in dumping shares either. The divergent chart patterns between the S&P and Nasdaq may be prompting many traders to stand on the sidelines with a “wait and see” approach.
In our July 9 commentary, we pointed out the breakout in the Market Vectors Gold Miners ETF (GDX). The following day, we explained how a pullback to the secondary and primary uptrend lines on the hourly chart can be used for gauging a potential entry point. Later that day, we bought an initial position in GDX when it touched support of its secondary uptrend line. GDX subsequently drifted a bit lower yesterday, but is still above its primary hourly uptrend line, which is currently at the 40.10 area. As GDX showed strength into the final hour of yesterday’s trading, it may be poised to resume the upward motion of the July 6 breakout. On the daily chart, notice the formation of the “bull flag” chart pattern. We have illustrated this below:
We’re already long GDX, but one might consider buying it above the upper channel of its “flag” if still looking for an entry point. Current positions could be added to on a breakout above the high of the flag formation.
On the international front, China has been getting all the attention lately. However, don’t forget about another fast-growing economy in Asia known as India. Over the years, the Chinese and Indian stock markets have taken turns outperforming each other. Lately, China has been on fire, while India has ascended at a slower rate. Based on chart patterns of numerous Indian ADRs we have analyzed, we believe that is about to change. Because of this, we are now stalking the iPath Barclay India Index (INP) for a potential buy. Looking at the daily chart below, notice how INP broke out above its prior high last week, then pulled back on July 10. Yet, it remains squarely above the lower channel support of its primary uptrending channel shown below:
When INP pulled back two days ago, it’s bullish that it held above support of its prior high from June 1. Yesterday, it quickly moved back towards the high of the previous day’s range. Now that the breakout level has been successfully tested, we plan to buy INP on a breakout above its two-day high. Regular subscribers to The Wagner Daily should note our trigger, stop, and target prices below.
Nothing has really changed in the broad markets. We still have the mixed technical picture of the Nasdaq holding near its six-year high, while the S&P and Dow remain stuck below their prior highs, struggling to stay above their 50-day moving averages. Until one of these indexes wins the tug-of-war between the bulls and bears, trading is likely to remain choppy and erratic. To avoid numerous stop outs and churning your account, the usual rules apply. First, consider reducing your share size, and thus your risk exposure, on all new trade entries. Second, hedge yourself on both sides of the market by simultaneously being long the sectors with relative strength (semis, internets, oil) and short those with relative weakness (broker-dealers, financials, utilities, and now retail). With the exception of QQQQ, most of the broad-based ETFs such as SPY and DIA are presently choppy and should be avoided on both the long and short side. Finally, look for trades that are not directly correlated to the direction of the U.S. markets. Commodity and currency-based ETFs, as well as the numerous international ETFs, are great ways to do so.
Today’s Watchlist:
INP – iPath Barclays India Index
Long
Shares = 200
Trigger = 63.01 (above the 2-day high)
Stop = 60.28 (below the 20-day EMA and primary uptrend line)
Target = new high (will trail stop)
Dividend Date = n/a
Notes = See commentary above for explanation of the setup. Because international ETFs frequently gap on the open, remember to use the MTG Opening Gap Rules if INP opens more than 10 cents above our trigger price.
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):
-
GDX long (200 shares from July 10 entry) – bought 40.69, stop 38.28, target new high (will trail stop), unrealized points = (0.03), unrealized P/L = ($6)
FXC long (250 shares from July 6 entry) – bought 95.51, stop 93.54, target new high (will trail stop), unrealized points = (0.54), unrealized P/L = ($135)
Closed positions (since last report):
-
(none)
Current equity exposure ($100,000 max. buying power):
- $31,875
Notes:
No changes to the open positions above.
Edited by Deron Wagner,
MTG Founder and
Head Trader