Commentary:
Support of the 20-day exponential moving averages of the leading Russell 2000 and Nasdaq Composite indices helped put the brakes on two days of losses, but stocks made little headway in the choppy, range-bound session. The S&P 500 and Dow Jones Industrial Average both gained 0.6%, but the Nasdaq Composite only edged 0.2% higher. The small-cap Russell 2000 and S&P Midcap 400 indices advanced 0.2% and 0.4% respectively. Showing indecision into the close, the Nasdaq Composite settled smack in the middle of its intraday range. The S&P 500 and Dow Jones Industrials closed in the upper quarter of their intraday ranges. Overall, it was a rather uneventful day.
Total volume in the NYSE increased 7% above the previous day’s level, while volume in the Nasdaq rose just 3%. The higher volume gains technically caused both the S&P 500 and Nasdaq Composite to register a bullish “accumulation day.” However, yesterday’s price action was more indicative of indecision than institutional buying. Further, volume in both exchanges remained well below average levels. Market internals were marginally positive. Advancing volume in the NYSE exceeded declining volume by a ratio of 3 to 2. The Nasdaq adv/dec volume ratio was merely flat.
Behind the scenes of a rather dull session, solar energy stocks were burning hot. Triggered by several impressive earnings reports in the sector, many leading solar stocks surged 5 to 10% higher yesterday. More importantly, quite a few stocks also broke out of patterns of consolidation. In 2007, solar energy was one of the top performing industries in the broad market, but the sector has been sideways to lower throughout 2008. Nevertheless, if yesterday’s bullish action proves to be more than just a one-day anomaly, solar stocks could again start to see serious institutional accumulation.
There are only two ETFs that are “pure plays” in the solar energy industry. They are Market Vectors Solar Energy (KWT) and Claymore Global Solar Energy (TAN; easy to remember ticker symbol). There are other alternative energy ETFs, but their portfolios also include stocks outside of the solar energy field. Both TAN and KWT broke out above multi-month ranges of consolidation yesterday, which is illustrated on the daily charts below:
A few weeks ago, we bought TAN when it moved above resistance of its intermediate-term downtrend line from the June high. However, we closed the position a few days later, when TAN subsequently retested its lows. It appears we were just a bit early on that entry, but yesterday’s breakout in TAN looks much better now. Not only was it a move above consolidation, but notice that TAN also reclaimed its 50-day moving average. Any pullback to near the breakout level, around $25.10, represents a low-risk buy entry. Notice that KWT has a similar chart pattern, as it too broke out above its 50-day MA yesterday. A retracement to the $38 level would represent a similar entry point in KWT, which may actually be showing slightly more relative strength than TAN.
Both the Russell 2000 and Nasdaq Composite dipped below support of their 20-day exponential moving averages on an intraday basis, but closed above them. The S&P 500 and Dow Jones Industrial Average, however, only rallied towards resistance of their intermediate-term downtrend lines that they fell below the previous day. This means the major indices remain out of sync with one another going into today. Whenever that occurs, one should expect choppy and indecisive conditions, just as we experienced yesterday. This is no time to be aggressively long on either side of the market. Frankly, cash is probably the best position right now. But if that’s not the case for you, consider having a portfolio that is at least balanced with a short position or two. We still have two healthcare ETFs, many of which have corrected down to support of their 20-day EMAs, but we also have a short position in the Dow (via DXD). If the market stabilizes in the near-term, we may also look to grab one of the solar ETFs on a pullback.
Today’s Watchlist:
There are no new setups in the pre-market, as the broad market is showing mixed signals at current levels (per the commentary in yesterday’s Wagner Daily). Better to lay low for the time being. Nevertheless, we will promptly send an Intraday Trade Alert if/when we enter anything new. The two solar ETFs, KWT and TAN, are on our watchlist for potential entry on a pullback or consolidation.
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. Please review the Wagner Daily Subscriber Guide for important, automatic rules on trigger and stop prices.
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Open positions (coming into today):
- No changes to stops on open positions.
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DXD long (250 shares from August 18) – bought 60.60, stop 59.77, target 66.40, unrealized points = + 1.90, unrealized P/L = + $475
IYH long (350 shares total – bought 250 on Aug. 5, added 100 on Aug. 14) –
bought 66.86 (avg.), stop 65.57, target 71.12, unrealized points = + 0.16, unrealized P/L = + $56
IBB long (200 shares from August 14) – bought 89.10, stop 86.22, target new high (will trail stop), unrealized points = (1.89), unrealized P/L = ($378)
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $56,524
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader