Last Friday’s session was a tale of two markets, as the bears ran the show in the morning, but the bulls resumed control in the afternoon. Aided by momentum from the previous day’s bullish reversal, stocks gapped higher on Friday’s open, fell into negative territory by mid-day, then sprinted to significant gains by the closing bell. The Nasdaq Composite climbed 1.2%, while the S&P 500 and Dow Jones Industrial Average scored identical gains of 0.8%. The small-cap Russell 2000 rose 0.9% and the S&P Midcap 400 advanced 1.5%. All the main stock market indexes closed around the upper quarter of their intraday ranges.
Despite the usual turnover increases derived from monthly options expiration days, total volume in the NYSE decreased 2%. Volume in the Nasdaq receded 9% below the previous day’s level. It was positive that trading in both exchanges remained above 50-day average levels, but it would have been more encouraging if higher volume accompanied last Friday’s gains. Still, the holiday weekend may have been to blame; traders often leave their desks early ahead of long weekends. Market internals were solid, though not overly impressive. In both the NYSE and Nasdaq, advancing volume exceeded declining volume by a margin of approximately 2 to 1.
So far this year, the Nasdaq Composite has shown the most relative strength of the major indices that comprise the broad market. Taking an updated look at its daily chart, we see the index finished last week right at its 50-day moving average (MA), which it fell below several days prior. As we’ve written about extensively in recent weeks, the ability of the major indices to hold support of their 50-day MAs will play a major role as to whether or not the intermediate-term uptrends off their November lows will continue:
Perhaps more importantly than the Nasdaq Composite’s test of its 50-day MA, notice how the index never broke support of its late December lows last week (as annotated by the blue horizontal line). If the Nasdaq continues to show relative strength, it could easily cause the S&P and Dow to snap back above their late December lows. This is especially true if the Nasdaq convincingly manages to reclaim its 50-day MA. As such, we cannot yet declare the death of the two-month old broad-based rally off the lows. Nevertheless, long ETF positions in the stock market should probably be focused on Nasdaq-related sectors (except currency and/or commodity ETFs), and be moderate in share size as well. Note that if any of the major indices close below their January 15 lows sometime this week, the slight relative strength of the Nasdaq will likely be invalidated. Further, a test of the November 2008 lows could follow shortly thereafter.
One Nasdaq-related ETF we’re monitoring for potential breakout this week is Biotech HOLDR (BBH). Its daily chart is shown below:
For the past several weeks, BBH has been consolidating in a tight range, right below “brick wall” resistance of its 200-day moving average. Even though the broad market has been in a short-term downtrend since the January 6 highs, notice how BBH has showed relative strength by merely trading sideways instead. As such, any strength in the overall market this week should enable BBH to punch through its 200-day moving average and resume its intermediate-term uptrend. Providing another bullish signal, notice that the 20-day exponential moving average (the beige line) crossed up through the 50-day moving average (the teal line) in late December. To confirm a breakout above its 200-day MA, we’re looking for BBH to rally above its January 6 high of $175.42. Our potential buy entry would be around the $176 area.
In the January 9 issue of The Wagner Daily, we pointed out a potential short sale in Regional Bank HOLDR (RKH). Specifically, we liked it for short entry if it broke down below horizontal price support from its December “swing lows.” The following day, RKH indeed broke that support level, and plunged sharply lower in the days that followed. Since our initial mention just over a week ago, RKH has tumbled nearly 20%! However, if you acted on our idea to sell short the RKH breakdown, you might consider covering your position and locking in profits. The daily chart of RKH below illustrates the reason why:
In a very short period of time, RKH has already fallen to test support of its November 2008 low. Though its relative weakness could cause RKH to breakdown to new lows, we prefer to lock in gains at major areas of support, such as prior lows, then consider re-entering on the first significant bounce. When a short position falls 19% in a one-week period, it borders on unrealistically high expectations that smell of greed. While a bit of greed is good in this business, too much greed can easily cause unrealized gains to disappear. Because we were focused on micromanaging our six open ETF positions, we did not “officially” enter RKH in our model account. Regardless, we like to provide subscribers with a constant flow of quality ETF trade setups so that advanced traders may take advantage of additional “self-serve” opportunities beyond our “official” plays.
As per above, we’re stalking BBH for potential entry, but are not listing parameters in the pre-market. Instead, we first want to assess broad market action, to make sure last week’s late strength remains intact, before entering new long positions. If we enter BBH, we will promptly send an Intraday Trade Alert with details of entry.
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):
- Our FXE setup triggered on last Friday’s open, as it gapped above its 50-day MA.
- For those of you whose ISPs occasionally deliver your e-mail with a delay, make sure you’re signed up to receive our free text message alerts sent to your mobile phone. This provides a great way to have redundancy on all Intraday Trade Alerts. Send your request to [email protected] if not already set up for this value-added feature we provide to subscribers.
- Reminder to subscribers – Intraday Trade Alerts to your e-mail and/or mobile phone are normally only sent to indicate a CHANGE to the pre-market plan that is detailed in each morning’s Wagner Daily. We sometimes send a courtesy alert just to confirm action that was already detailed in the pre-market newsletter, but this is not always the case. If no alert is received to the contrary, one should always assume we’re honoring all stops and trigger prices listed in each morning’s Wagner Daily. But whenever CHANGES to the pre-market stops or trigger prices are necessary, alerts are sent on an AS-NEEDED basis. Just a reminder of the purpose of Intraday Trade Alerts.
DGP long (350 shares from Jan. 15 entry) –
bought 15.60, stop 13.78, target 21.70, unrealized points = + 0.93, unrealized P/L = + $326
FXE long (150 shares from Jan. 16 entry) –
bought 133.18, stop 129.33, target 142.80, unrealized points = (0.17), unrealized P/L = ($26)
GDX long (150 shares from Dec. 26 entry) –
bought 31.40, stop 26.48, no target (will trail stop), unrealized points = (0.47), unrealized P/L = ($71)
Closed positions (since last report):
Current equity exposure ($100,000 max. buying power):
Edited by Deron Wagner,
MTG Founder and