Commentary:
The stock market followed up last Thursday’s massive rally with a round of modest gains on Friday. Both the S&P 500 and Dow Jones Industrial Average advanced 0.3%, as the Nasdaq Composite ticked 0.2% higher. The small-cap Russell 2000 gained only 0.1%, but the S&P Midcap 400 rallied 0.4%. After recovering from a choppy start in the morning, the Nasdaq finished at its intraday high. The S&P and Dow drifted higher throughout most of the day, but finished slightly off their best levels of the session.
Total volume in the NYSE declined 19%, while volume in the Nasdaq came in 21% below the previous day’s level. Given the strength of the previous day’s higher volume gains, it wasn’t surprising to see receding turnover. Lower volume consolidation days are healthy because they tell us the sellers are staying away while the buyers take a rest. Conversely, higher volume during periods of consolidation is often bearish and indicative of institutional selling into strength. This week, we’ll be on the lookout for any major warning signs of higher volume selling or “churning” that could point to last week’s breakout as potentially being an unsustainable fluke. But for now, the broad market’s price to volume relationship remains positive.
Last month, we discussed the relative strength that the Alternative Energy sector was beginning to show, specifically with regard to Solar Energy stocks. Since then, this sector has been on fire! Leading stocks such as First Solar (FSLR) and JA Solar Holding (JASO) have been zooming higher without even modestly correcting along the way. Tagging along for the ride has been an ETF named the PowerShares WilderHill Clean Energy (PBW). Since breaking out above its consolidation in mid-June, PBW has been steadily trending upwards:
With such a strong trend, PBW is definitely on our watchlist for a potential long entry, but it needs to correct first, either by price or time. For a correction by price, we are looking for at least a pullback down to the lower channel support of its hourly uptrend line from the mid-June low. Presently, that is around the $21.50 to $21.75 area. Support of the 20-day EMA lies just below at $21.32. However, when stocks and ETFs are in very strong trends, they often don’t correct by price. Instead, they correct by time, also known as consolidation. If PBW begins trading in a sideways range for a week or so, it will enable both the 20-day EMA and hourly uptrend line to rise up and eventually meet the price. In this scenario, we would buy the subsequent breakout above the high of the consolidation. We’ll maintain a daily watch on PBW and will be sure to alert you of potential entry levels in the coming weeks.
As for the broad market, a bit of a price retracement to follow its recent gains would not be out of the ordinary. If this happens, there are three factors we’ll be closely watching: 1.) We want to see lighter volume accompany any pullback. 2.) The S&P and Dow need to hold above their breakout levels (1,540 and 13,692 respectively) 3.) Market-leading stocks need to maintain their gains and not form bearish patterns. As long as all three of these factors correspond to any correction, our bias remains bullish overall.
Today’s Watchlist:
There are no new setups in the pre-market today. As always, we will send an intraday e-mail alert if/when we come across any new ETF trade entries today.
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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INP long (200 shares from July 12 entry) – bought 63.07 (avg.), stop 60.28, target new high (will trail stop), unrealized points = + 1.19, unrealized P/L = + $238
GDX long (200 shares from July 10 entry) – bought 40.69, stop 38.28, target new high (will trail stop), unrealized points = + 0.62, unrealized P/L = + $124
IBB long (250 shares from July 13 entry) – bought 80.33, stop 78.69, target 83.35, unrealized points = + 0.02, unrealized P/L = + $5
FXC long (250 shares from July 6 entry) – bought 95.51, stop 93.54, target new high (will trail stop), unrealized points = + 0.02, unrealized P/L = + $5
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $65,084
Notes:
No changes to the open positions above.
Edited by Deron Wagner,
MTG Founder and
Head Trader