Trading got off to a relatively flat start yesterday morning, but the stock market’s lack of price support from new 52-week lows enabled the bears to quickly take control. The major indices broke down to new intraday lows just before lunch time, then trended lower throughout the afternoon. The Dow Jones Industrial Average lost 1.3%, the S&P 500 1.6%, and the Nasdaq Composite 2.0%. The small-cap Russell 2000 and S&P Midcap 400 indexes were lower by 2.5% and 2.1% respectively. All the major indices finished at their intraday lows.
Total volume in the NYSE receded 6%, while volume in the Nasdaq decreased 10% below the previous day’s level. Despite the main stock market indexes testing critical support of their prior intraday lows from January, turnover remained low. Even though yesterday’s selling was not very heavy, buying interest was even more scarce. It only takes minimal selling pressure to send stocks lower when the major indices are trading at new 52-week lows. Conversely, markets at 52-week highs can easily continue higher, even on minimal volume.
Commodity ETFs have been the strongest sector for several months, but a few of them are finally starting to correct. As they begin to pull back to support of their uptrend lines and/or 20-day moving averages, they will provide low risk entry points to buy. One ETF in particular we are stalking is the iShares Silver Trust (SLV). We’ve discussed this ETF several times over the past month, particularly the fact that it’s been showing so much relative strength to its big brother, the StreetTRACKS Gold Trust (GLD). Having been in an impressive uptrend throughout all of 2008, we’re looking for SLV to pull back to support of its 20-day EMA or primary uptrend line. This is illustrated on the daily chart below:
Because the steady uptrend has been firmly in place for several months, and it’s only the first leg of the new uptrend, one must assume the uptrend will continue until SLV proves otherwise. That’s why we’re looking to buy a pull back to support of either the 20-day EMA (the beige line) or multi-month uptrend line (the dashed red line). Nevertheless, at that point, we will not blindly buy SLV on the first touch of support. Instead, we will then drill down to the hourly chart and wait for the first rally above the short-term hourly downtrend line. Waiting for confirmation that the uptrend will resume significantly lowers the risk, while only paying a slightly higher price than buying the first test of support. We’ll continue monitoring the price action of SLV in the coming days and will notify subscribers via Intraday Trade Alert if/when we see the proper entry point to buy it.
Another commodity ETF that may soon present an ideal entry point is the PowerShares Agriculture Fund (DBA). This ETF, composed of futures contracts on agricultural commodities such as corn, wheat, soy beans and sugar, has been in a monstrous uptrend since November of last year. Its daily chart is below:
Two days ago, DBA closed below its 20-day EMA. It’s been so strong that this occurred only one other time since its uptrend began, back on January 23. When that happened, notice that it only stayed below its 20-day EMA for one day before popping back above it. As DBA closed near its intraday high yesterday, and right at its 20-day EMA, it may repeat its late January performance. Again, we’ll wait for DBA to move back above its new hourly downtrend line before buying. That will minimize the odds of a premature entry that makes another leg lower, perhaps down to the 50-day MA, before going back up.
Yesterday, we said, “The major indices could easily probe below their intraday lows from January and trigger a slew of protective stops before the specialists begin scooping up shares.” The Nasdaq indeed closed a few points below its intraday lows of January, as the S&P 500 closed just three points above its low. We also said that, “Overall, we feel both long and short positions are risky with the major indices at such pivotal levels, though the long-term trends clearly continue to favor the short side. This is a good time to patiently wait on the sidelines, preserving capital until stocks show their hand for the direction of their next move.” Our sentiment remains exactly the same going into today.
There are no new pre-market setups. However, as per above, we are now stalking both SLV and DBA for potential long entries. If either one presents an ideal entry point intraday, we’ll promptly send an alert. Otherwise, we’ll continue monitoring their price action as they correct longer.
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):
Closed positions (since last report):
Current equity exposure ($100,000 max. buying power):
We remain flat.
Edited by Deron Wagner,
MTG Founder and