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The Wagner Daily


Commentary:

Stocks oscillated in a sideways to slightly higher range through another lackadaisical session yesterday, causing the major indices to finish with mixed results. The S&P 500 advanced 0.3% and the Dow Jones Industrial Average eked out a gain of 0.1%, but the Nasdaq Composite fell 0.4%. Even small and mid-cap stocks showed divergence. The Russell 2000 lost 0.9%, as the S&P Midcap 400 ticked 0.1% higher. With the exception of the Russell 2000, all the main stock market indexes finished in the upper third of their intraday trading ranges.

Seasonal summertime “blahs” caused turnover to fall to its lowest levels in months. Total volume in the NYSE eased 14% below the previous day’s level, while volume in the Nasdaq declined 11%. It’s been more than two weeks since volume in the NYSE even exceeded its 50-day average level, but that’s not unusual for this time of year. After the Labor Day holiday, expect trading to start picking up again.

In the August 19 issue of The Wagner Daily, we illustrated how the SPDR Gold Trust (GLD) had pulled back to support of its long-term, multi-year uptrend line. Specifically, we said, “If you’ve been looking for a low-risk place to buy some gold for your long-term account, such as an IRA or 401k, an entry into GLD at current levels makes sense.” We did, however, caution that the atrocious sell-off over the past month meant that GLD was not ideal for a short-term play. Let’s take a look at how GLD has performed since our heads-up for a potential buy entry. The first chart below is of the long-term monthly time frame, while the second chart presents a more detailed look of the weekly time frame.

On the weekly chart (the second one), notice how GLD perfectly bounced off support of its multi-year uptrend line this week. GLD actually probed a few cents below support of its primary uptrend line last week, but it’s normal for stocks and ETFs to briefly dip below obvious levels of support before stabilizing (known as an “undercut”). That’s the same manner in which we recently grabbed a low-risk entry point into UltraShort Financials ProShares (SKF) when it “undercut” its 200-day moving average (we sold a few days later for a gain of approx. + 20 points).

The broad healthcare sector, including biotech, pharmaceutical, and medical devices, was the leading sector throughout the broad market rally from the middle of last month to the middle of this month. Over the past several days, healthcare has been correcting by selling off down to key support levels, but the recent retracement now presents a buying opportunity for traders and investors who might have missed the initial thrust higher in the various healthcare ETFs. Many healthcare ETFs are now poised to reumse their intermediate-term uptrends. The daily chart of iShares Healthcare Sector Index (IYH) is an example of this:

Notice how IYH bounced off support of its 20-day exponential moving average, just as it came into new support of its 200-day moving average (the thick orange line). This is how strong and healthy stocks and ETFs typically perform — they rally, pullback to 20-day EMA, rally to set a “higher high,” then pullback to 20-day EMA again, forming a “higher low,” before rallying to set another “higher high.” If you’re not already positioned in the healthcare sector, you might consider doing so on this pullback. We expect most of the healthcare ETFs to zoom to new highs in over the next several weeks.

Here’s a little something to think about. Take a look at the following short-term, hourly chart pattern of an ETF, and determine which direction you think the next move is likely to go:

If you said “higher,” we agree with you. After making a significant, upward move in a short period of time, stocks and ETFs will often consolidate in a tight, sideways range before breaking out to a new high. That’s exactly what’s happening on the chart above. The big question, however, is which ETF is shown above? It is an hourly chart of the UltraShort Dow 30 ProShares (DXD), which we bought on August 14. Since the UltraShort family of ETFs moves in the opposite direction of the underlying index, that means the Dow is now consolidating at its recent low (or recent high for the UltraShort ETF). Obviously, this is bearish for the Dow. Based on the patterns of both DXD and SDS (UltraShort S&P 500 ProShares) looking the same, it looks as though the next move in the broad market will be lower. Nevertheless, both the leading Russell 2000 and Nasdaq Composite indexes are at key support levels. As such, we continue to maintain a mixed portfolio of ETF positions, but with a light overall exposure to the market.


Today’s Watchlist:

There are no new setups in the pre-market, as the broad market is showing mixed signals at current levels. 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.

    Open positions (coming into today):

      DXD long (250 shares from August 18) – bought 60.60, stop 59.77, target 66.40, unrealized points = + 2.04, unrealized P/L = + $510

      IBB long (200 shares from August 21 re-entry) – bought 86.18, stop 84.89, target new high (will trail stop), unrealized points = + 0.24, unrealized P/L = + $48

      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 = + 0.08, unrealized P/L = + $28

    Closed positions (since last report):

      IBB long (200 shares from August 14) – bought 89.10, sold 86.20, points = (2.90), unrealized P/L = ($584)

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

      $56,370

    Notes:

    • We stopped out of IBB yesterday morning, but, per Intraday Trade Alert, re-entered the position later in the day. Tight stop below the recent range reduces the risk on the re-entry.

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Edited by Deron Wagner,
MTG Founder and
Head Trader

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