The major indices opened below their previous day’s lows last Friday morning, but buyers immediately stepped in and closed the downward gaps. Upon rallying back to unchanged levels ninety minutes after the open, stocks came into equilibrium, where they subsequently oscillated in a narrow, sideways range throughout the rest of the day. Both the S&P 500 and Nasdaq Composite were flat, while the Dow Jones Industrial Average eked out a gain of 0.1%. The small-cap Russell 2000 and S&P Midcap 400 indices each advanced 0.4%. All of the main stock market indexes settled near their intraday highs, though the afternoon’s trading ranges were relatively tight.
Total volume in the NYSE fell 5%, as volume in the Nasdaq came in 6% below the previous day’s level. In both exchanges, advancing volume marginally exceeded declining volume. Given that stocks finished mainly flat, the lower turnover didn’t tell us much. It was positive, however, that the broad market was able to recover from its opening gap down. It’s now been one month since volume in either the NYSE or Nasdaq exceeded 50-day average levels. But with all eyes on tomorrow’s Federal Reserve Board meeting, traders and investors may remain on the sidelines today as well.
In last Friday’s Wagner Daily, we illustrated the potential long setup in the Oil Service HOLDR (OIH). Specifically, we liked the consolidation near the highs, which had tightened up over the preceding several days. As such, our plan was to buy OIH on a breakout above the high of the recent range. As shown on the updated daily chart below, OIH has not yet triggered, but remains on our watchlist for potential long entry in today’s session:
This week, we suggest monitoring the performance of the Securities Broker-Dealer Index ($XBD). The sub-prime mortgage concerns initially triggered severe losses in this industry sector, which in turn pulled the broad market lower back in July. Over the past several weeks, the $XBD has been stabilizing, and is now poised to test resistance of its consolidation. Take a look:
If the $XBD index breaks out above the horizontal price resistance shown above, it will immediately run into the 50-day MA. Obviously, it would be bullish for the S&P and Dow if the $XBD index breaks out above its 50-day MA, but traders could just as easily sell into that clear area of resistance. Either way, the price action in the $XBD near this pivotal level is likely to move the markets this week.
Because the index was unchanged last Friday, the S&P 500 remains glued to convergence of its intermediate-term downtrend line and 50-day moving average. Like we said last Friday, the S&P remains at a pivotal “make it or break it” level. The Dow is trying to decide whether or not to convincingly break out above its 50-day MA as well. Purely on a technical level, one could expect such pivotal support/resistance levels to provide a strong market reaction in one direction or the other. But when you add the timing of tomorrow’s FOMC meeting on economic policy, the velocity of an anticipated move could be compounded even further. Be careful on both sides of the market over the next several days, as it could get pretty whippy!
OIH – Oil Service HOLDR
Shares = 100
Trigger = 185.78 (over the high of the consolidation)
Stop = 180.83
Target = new high (will trail stop)
Dividend Date = n/a (individual stocks pay dividends)
Notes = We’ve been stalking this setup for a potential long entry over the past several days, but it has not yet triggered. Still, the setup continues to look good and remains on today’s watchlist.
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):
IBB long (125 shares remaining from Aug. 31 and Sept. 7 entries) –
bought 79.62 (avg.), stop 78.89, target 83.30, unrealized points + 1.68, unrealized P/L + $210
LQD long (350 shares from August 31 entry) – (see notes below regarding dividend distributions)
bought 104.99 (avg.), stop 103.53, target 107.48, unrealized points + 0.14, unrealized P/L + $49
SDS long (250 shares from September 13 re-entry) – bought 53.90, stop 53.18, target 62.89, unrealized points + 0.00, unrealized P/L + $0
DXD long (300 shares from September 5 entry) – bought 51.42, stop 49.38, target 56.90, unrealized points (1.51), unrealized P/L ($453)
Closed positions (since last report):
Current equity exposure ($100,000 max. buying power):
No changes to the open positions.
On September 4, LQD traded ex-dividend, with a dividend distribution of 49 cents per share. Unrealized points and P/L figures include this distribution, which will be paid out on September 10.
Edited by Deron Wagner,
MTG Founder and