Commentary:

After opening slightly higher, the major indices drifted lower throughout the morning, then gradually recovered throughout the afternoon. Stocks eventually finished near the flat line and with mixed results. The Nasdaq Composite gained 0.3%, as the Dow Jones Industrial Average declined by the same percentage. The benchmark S&P 500 was down less than 0.1%. Small and mid-cap issues continued to show moderate relative strength. The Russell 2000 advanced 0.5% and the S&P Midcap 400 climbed 0.6%. Although the S&P 500 and Dow Industrials closed near the middle of their intraday ranges, the Nasdaq Composite finished just off its best level of the day.

Turnover picked up across the board, which had mixed implications for the main stock market indexes. Total volume in the NYSE increased 12% above the previous day’s level, causing the Dow Jones Industrial Average to register a bearish “distribution day.” It was the fourth such day of institutional selling in recent weeks. Volume in the Nasdaq similarly rose 6%, but the index technically scored a bullish “accumulation day” because it advanced on higher volume. Since it was an indecisive day in which the S&P, Nasdaq, and Dow all closed within 0.3% of unchanged, it’s fair to say neither the bulls nor bears had the upper hand in yesterday’s relatively boring session.

Yesterday, we discussed the possibility of buying the gold and/or silver commodity ETFs if they broke out above the previous day’s highs. To our surprise, both ETFs gapped down significantly yesterday, thereby invalidating the bullish setups. Fortunately, neither ETF triggered for our long entry, so no damage was done. Both ETFs have been temporarily removed from our watchlist, at least until price action tightens up.

Besides the usual suspects of oil and gas-related issues, which have been going up nearly every day, there are a few less obvious ETFs with bullish chart patterns we’re monitoring right now. First is the Market Vectors Russia ETF (RSX), which we initially brought to your attention after it broke out on May 8. Since then, RSX has retained all of that day’s strong gain, and is now consolidating in a tight range. On a near-term basis, the 20-period exponential moving average on the hourly chart interval has risen up to provide support. This could enable RSX to make another momentum-driven move higher in the coming days. On the hourly chart of RSX below, the beige line indicates support of the 20-EMA that has caught up to the price. A buy entry could be made above yesterday’s high:

Another international ETF poised to breakout higher is the iShares S&P Latin America Index (ILF). After a brief “shakeout” below its 20-day EMA late last month, ILF quickly rallied back to the area of its historical high price a few days later. Since then, ILF has been trading in a sideways range, and the 20-day EMA has risen further to provide price support. In the coming days, watch for a breakout above its base of consolidation, specifically above yesterday’s high:

Within the energy sector, oil and gas ETFs have been getting the most attention. However, coal stocks have also been steadily moving higher. One way to capitalize on the strength in coal is through buying the Market Vectors Coal ETF (KOL), which was launched just four months ago. On the daily chart of KOL below, notice that it just broke out above a short-term base of consolidation to a fresh all-time high. Any small pullback in KOL is buyable, as bullish momentum should carry it higher in the near-term:

We’re starting to see more divergence in the broad market. The S&P 500 and Dow Jones Industrial Average are still in danger of forming near-term “lower highs” and falling below support of their 20-day EMAs. Such a move would undoubtedly lead to further downside momentum. Conversely, both the Nasdaq Composite and Nasdaq 100 indices are now positioned to breakout to their highest levels of the year. If the Nasdaq Composite breaks out, we must wonder how much resistance the 200-day MA (just overhead) will provide. Conversely, the large cap Nasdaq 100 is already above its 200-day MA, which makes the ProShares Ultra QQQ (QLD) an attractive momentum play on the long side if the Nasdaq 100 breaks out above its recent range. Due to dividend distributions, QLD is actually still below its 200-day MA, but the chart of the Nasdaq 100 Index itself is more important in this case. Notice the bullish consolidation on the daily chart of QLD below:

In case you’re not familiar with it, QLD moves in sync with the more popular Nasdaq 100 Tracking Stock (QQQQ), but at a ratio of double the percentage gain or loss of the underlying index. The leveraged ProShares “Ultra” family of ETFs gives traders better profit potential with their buying power, especially when trading ETFs that are tied to broad-based indexes.

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Today’s Watchlist:

Market Vectors Russia ETF (RSX)
Long

Shares = 300
Trigger = 55.17 (above yesterday’s high)
Stop = 53.18 (below support of May 8 gap)
Target = new high (will trail stop)
Dividend Date = n/a

Notes = See commentary above for explanation of the setup. In the event of an opening gap above the trigger price, remember to wait for a rally above the 20-minute high (as per the MTG Opening Gap Rules).

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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):
DXD long (350 shares from May 7 entry) – bought 50.79, stop 48.89, target 56.30, unrealized points = + 0.64, unrealized P/L = + $224

UUP long (1,300 shares from April 25 entry) – bought 22.68 (avg.), stop 22.39, target 23.72, unrealized points = + 0.12, unrealized P/L = + $156

Closed positions (since last report):

(none)

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

$47,640

Notes:


We sent an Intraday Trade Alert to potentially enter SLV yesterday, but it failed to move above our trigger price. As such, our only open positions remain DXD and UUP. Both positions have been in holding patterns, but remain in the plus column. If the Nasdaq breaks out, it may pull the S&P and Dow along with it. If that happens, we can simply close our DXD position for a scratch or small gain. Our profit buffer and good entry price make the play low-risk.

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Edited by Deron Wagner,
MTG Founder and
Head Trader