Commentary:

Another choppy session ended with mixed results last Friday, concluding a rather ugly week for the stock market. The Nasdaq Composite advanced 0.5%, but the S&P 500 and Dow Jones Industrial Average were lower by 0.4% and 0.5% respectively. The small-cap Russell 2000 slipped 0.6%, though the S&P Midcap 400 managed to gain 0.2%. All the major indices formed “inside days” last Friday, meaning their intraday trading ranges were contained within the previous day’s highs and lows. For the week, each of the main stock market indexes completely surrendered their previous week’s gains, which were among the biggest in years. Going into today’s session, the balance of power has clearly returned to the bears.

Turnover in the NYSE eased 17%, as volume in the Nasdaq declined 24% below the previous day’s level. Trading in both exchanges slipped just below average levels. Not surprisingly, market internals were mixed. Advancing volume in the Nasdaq exceeded declining volume by a margin of 2 to 1. The NYSE adv/dec volume ratio, however, was negative by the same margin.

Throughout last week, we discussed the benefits of trading or investing in ETFs with little or no correlation to the direction of the U.S. stock market. The DB Commodity Index (DBC), which we initially analyzed in the February 6 issue of The Wagner Daily, broke out to a new all-time high on Friday. A great example of an ETF that is capable of ignoring recent market weakness, we bought DBC on the breakout from a tight base of consolidation. Because it’s comprised of a variety of commodities futures contracts, there is no concern of the breakout failing just because of weakness in the U.S. stock market. The move also occurred on double its average daily volume, confirming commdotities demand from institutional investors as well. The breakout is shown on the daily chart below:

In addition to buying DBC last Friday, we also entered the U.S. Natural Gas Fund (UNG) after it broke out above resistance of its weekly downtrend line. The bullish move in this ETF, which roughly mirrors the price of natural gas, is shown on the weekly chart below:

If the major indices manage to hold at support of their February 7 lows for the next several days, we could see another near-term bullish move back towards resistance of the recent highs. Though the main stock market indexes gave back all of the prior week’s solid gains, their retracements from the January 23 lows to the February 1 highs still have not been very deep. Until we see the break of either last week’s lows or the February 1 highs, be prepared for continued indecision and whipsaw action in the broad market. Investing and trading in ETFs with little correlation to the U.S. equities markets is a great way to both reduce your risk and realize profitable trading opportunities.

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Today’s Watchlist:

We are not stalking anything in the pre-market today, as the broad market is positioned for choppy conditions in the near-term.

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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):
DBC long (600 shares from February 8 entry) – bought 32.77, stop 31.69, target new high (will trail stop), unrealized points = + 0.64, unrealized P/L = + $384

UNG long (350 shares from February 8 entry) – bought 40.10, stop 38.20, target 44.40, unrealized points = + 0.40, unrealized P/L = + $140

Closed positions (since last report):

QLD long (200 shares from February 7 entry) – bought 69.68, sold 69.45, points = (0.23), net P/L = ($46)

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

$34,221

Notes:


Per intraday alert, we bought both DBC and UNG last Friday. They closed well and look great going into this week. We also made a judgement call to tighten the stop on QLD, which we subsequently scratched on Friday afternoon.

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Edited by Deron Wagner,
MTG Founder and
Head Trader