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The Wagner Daily


Commentary:

After two days of deliberation at their recent lows, the major indices followed through with another broad-based wave of selling yesterday. Stocks opened flat, promptly dropped in the morning, traded sideways throughout the afternoon, then moved to new intraday lows in the final thirty minutes of trading. Breaking below pivotal support of its May low and 50-day moving average, the Nasdaq Composite tumbled 2.2%. The S&P 500 and Dow Jones Industrial Average suffered matching losses of 1.7%. The small-cap Russell 2000 and S&P Midcap 400 indices were lower by 2.0% and 1.8% respectively. As with the massive sell-off on June 6, all the main stock market indexes finished at their dead lows of the day.

Total volume in both the NYSE and Nasdaq increased 2% above the previous day’s levels, indicating increased institutional participation on the sell side. Although turnover only ticked mildly higher, note that trading had already been coming in above 50-day average levels for most of the past two weeks. Not surprisingly, market internals were ugly. In the NYSE, declining volume exceeded advancing volume by a margin of more than 5 to 1. The Nasdaq adv/dec volume ratio was negative by nearly 7 to 1.

One of the very few ETFs consolidating near its all-time high, poised for another breakout to fresh highs, is the Market Vectors Agribusiness (MOO). Designed to follow the price movement of the DAXglobal Agribusiness Index, which is comprised of forty different agriculture-related companies, MOO has managed to completely ignore recent weakness in the major indices. Since the S&P 500 ran into resistance of its 200-day MA on May 19, setting in motion its current downtrend, the benchmarket index has lost 6.4%. But during this same period, MOO has actually gained 1%. More importantly, the bullish consolidation of MOO’s daily chart pattern remains intact, as does support of the 20-day exponential moving average below. A breakout above the June 5 high of $64.23, the proper trigger for buy entry, is annotated on the daily chart below. As always, remember it’s risky to “jump the gun” and buy before MOO actually moves above the resistance level:

Yesterday, we spotted some interesting trading activity in the Market Vectors Russia (RSX), a strong ETF we’ve mentioned several times over the past week. On an average day, RSX trades about 700,000 shares. Yesterday, however, turnover jumped to 2.4 million shares, more than 3 times the average daily volume. It was also the highest daily volume RSX has historically traded in its short lifespan. When such volume spikes occur in stocks and ETFs, it is always the result of trading activity by mutual funds, hedge funds, pension funds, and other institutions. Although volume surges usually coincide with large percentage price movements, that was not the case with RSX.

Despite the sharply higher turnover, RSX didn’t move more than a few cents yesterday. What does this mean? The general observation we’ve learned over the years is that if a stock or ETF trades on high volume, but the price is little changed, it’s bullish if that situation occurs after a pullback, within an uptrend. This is usually indicative of stealth institutional accumulation that precedes a rally. Conversely, its bearish if the high volume with little price movement occurs at the top of an uptrend. This is equivalent to “churning” caused by institutional selling into strength.

While the U.S. markets plunged lower over the past week, RSX held in a tight range. Further, it found support at last week’s lows, causing a near-term “double bottom” to be formed. Because it has held firm while the domestic markets sold off, RSX, along with MOO, should be one of the first ETFs to zoom higher when the main stock market indexes eventually find support and begin reversing. The daily chart of RSX below shows its tight holding pattern over the past week:

On the shorter-term hourly chart below, we’ve annotated the hourly downtrend line of RSX that began with the June 2 high. To capitalize on its relative strength, you might consider buying RSX when it breaks out above resistance of this downtrend line. A breakout above that level presents a buy point with a very positive risk/reward ratio. For more price confirmation, you might also wait for a move above the high of the past two days ($55.44):

The S&P 500 finished just 10 points (0.8%) above key support of its 61.8% Fibonacci retracement and April 2008 low (the 1,325 level). Yesterday, we illustrated this major area of price support on the daily chart of the S&P 500 SPDR (SPY). To reiterate our prior analysis, we view the 1,325 area as an ideal place to take profits on short positions and/or consider buying a few stocks or ETFs that have shown relative strength while the market sold off (such as RSX and MOO). Odds are pretty good the S&P will put in a significant bounce when it tests the 1,325 area, but realize the bounce could also come before the index actually reaches that level. As such, we have switched to a tight trailing stop to protect our large profit in the UltraShort Dow 30 ProShares (DXD). Looking at the daily chart of DXD below, notice it broke out above a clear area of horizontal price resistance yesterday:

Prior resistance of the DXD breakout level, around $56.45, should now act as the new support level on any pullback in DXD. Therefore, we’ve placed our updated trailing stop about 25 cents below the breakout level. As long as DXD stays above that level, we’ll let the profits ride because it could go much higher if downward momentum in the market continues. However, a drop below the $56.45 breakout level gives us a sound technical reason to still secure a majority of our profit.


Today’s Watchlist:


Market Vectors Russia (RSX)
Long

Shares = 400
Trigger = 55.53 (above the hourly downtrend line and 2-day high)
Stop = 54.22 (below the low of short-term double bottom)
Target = new high (will trail stop)
Dividend Date = n/a

Notes = See commentary above for explanation of the setup.


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 (450 shares – 175 on May 29, 175 on June 2, 100 on June 11) – bought 53.72 (avg.), stop 56.19, target (see note below), unrealized points = + 3.49, unrealized P/L = + $1,571

      DUG long (350 shares from June 3 entry) – bought 29.60, stop 26.69, target 33.85, unrealized points = (1.90), unrealized P/L = ($665)

    Closed positions (since last report):

      (none)

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

      $35,440

    Notes:

    • Per Intraday Trade Alert, we added to the DXD position when it broke out above its three-day high. New share size and average price reflected above. Note that we are now using a tight trailing stop, below yesterday’s breakout level, to protect a majority of our profit. If that stop is hit, we will still lock in a gain of more than $1,000. Feel free to use an even tighter stop if you so desire. As for a price target, we no longer are specifically using one. Instead, we will simply continue trailing the stop higher until it eventually gets hit. This prevents us from leaving a lot of profit on the table.
    • As discussed in our commentary above, be on guard with short positions near current levels. We’re playing it tight with DXD, and are now stalking for one or two non-aggressive long entries as well. RSX should move nicely if the market bounces and holds. MOO is another buy candidate if it breaks out, but we are “officially” only stalking RSX today.

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Edited by Deron Wagner,
MTG Founder and
Head Trader

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