Stocks built on their previous day’s gains yesterday, but it was another choppy, range-bound session. Both the S&P 500 and Nasdaq Composite gained 0.4%, while the Dow Jones Industrial Average ticked 0.3% higher. The small-cap Russell 2000 and S&P Midcap 400 indices rallied 0.6% and 0.8% respectively. Although the major indices finished near their intraday highs, both the S&P and Dow their tightest trading ranges since their consolidations began last week. Most of yesterday’s gains were the result of an opening gap up in the broad market. As such, not a lot can be read into yesterday’s broad market action.
Total volume in the NYSE eased 9%, as volume in the Nasdaq registered 13% below the previous day’s level. Considering the lack of intraday direction in the stock market yesterday, it’s not surprising that turnover was also lighter. Higher trading levels usually translate to steadier intraday trends, whether up or down. In both exchanges, advancing volume exceeded declining volume by just under 2 to 1.
With the impressive strength in the price of spot gold over the past month, the Market Vectors Gold Miners (GDX), comprised of a basket of individual gold mining stocks, has scored solid gains as well. Now that spot gold is finally taking a rest, GDX has pulled back slightly as well. However, the pattern on its daily chart is still quite bullish, pointing to a potential entry point above yesterday’s high. Take a look:
Two days ago, GDX pulled back to test support of its breakout to a new 52-week high (the dashed horizontal line). It firmly held the test of support, then traded in a narrow range yesterday. Support of the primary uptrend line off the August low (the ascending blue line) is now providing key support as well. If GDX moves above yesterday’s high, we can expect a resumption of the primary uptrend, as it will break out above resistance of its short-term downtrend line from the recent high.
As the hourly uptrend lines in the S&P and Dow have held up for the past several days, many of the major indices are now forming rather bullish looking consolidations on their hourly charts. If these patterns follow through, it could lead to high momentum breakouts in the stock market sometime next week. But despite the tight consolidations that have formed since the Fed-inspired breakout, there remains valid reason to be cautious.
We’ve learned from experience that chart patterns that look too obvious and clear rarely follow through without first shaking out the “weak hands.” Since the September 18 breakout, stocks have simply not experienced any substantial “shakeout” action. This, of course, does not mean that the market must have a shakeout before breaking out above the range, but such price action would make a subsequent breakout all the more likely to hold up. Breakouts without prior shakeouts often turn out to be fakeouts. Get it? Got it? Good!
SDS – UltraShort S&P 500 ProShares
Shares = 350
Trigger = 50.87 (above yesterday’s high)
Stop = 49.47 (below the recent lows)
Target = 55.28 (resistance of 200-day MA)
Dividend Date = December 2007
Notes = We’ve been stalking SDS for the past several days, just in case the S&P 500 breaks support of its hourly uptrend line. It has not yet done so, but we’ll keep the trade on our watchlist for one more day just in case. Note the updated trigger price, which is for the full position.
As per above, we are also stalking GDX for a potential long entry. However, because gold gaps a lot in the overnight markets, we will first assess the intraday price action, rather than listing a trigger price in the pre-market. If/when we buy GDX, we will promptly send an intraday e-mail alert.
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):
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 + 1.06, unrealized P/L + $371
Closed positions (since last report):
Current equity exposure ($100,000 max. buying power):
Just when we were ready to sell LQD due to umimpressive price action, it began to wake up and closed at a new multi-month high yesterday. However, note that dividends will again be distributed next week. Most of the fixed-income ETFs pay dividends monthly. Since it’s starting to show bullish price action, we’ll stay with LQD a bit longer, let the gains ride. As for the SDS setup, it still has not yet triggered.
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