Commentary:
Maintaining its recent pattern of erratic and whippy trading, the stock market surrendered a substantial portion of the previous day’s gains. After gapping down on the open, the major indices built on their losses throughout the morning, briefly attempted to rally in the early afternoon, then drifted back down in the final ninety minutes of trading. The Dow Jones Industrial Average settled with a 1.3% loss, as the S&P 500 declined 1.5%. Weighed down by a negative earnings report from Microsoft Corp., the Nasdaq Composite closed 2.8% lower. The small-cap Russell 2000 and S&P Midcap 400 indices shed 3.1% and 2.3% respectively. Confirming the lack of intraday direction, each of the main stock market indexes finished near the middle of its intraday range.
Total volume in the NYSE declined 10% below the previous day’s level, enabling the S&P 500 to avert a “distribution day.” Turnover in the Nasdaq, however, rose 6%. It’s negative that a session of higher volume losses immediately followed the Nasdaq’s “accumulation day” of Wednesday. Nevertheless, such volatility in the Nasdaq is to be expected considering the varied reactions to this week’s earnings reports from key tech companies such as Apple, Google, and Microsoft.
In the January 21 issue of The Wagner Daily, we looked at the bullish technical state of SPDR Gold Trust (GLD), which follows the price of the spot gold commodity. At the time, GLD had rallied into key resistance of its six-month downtrend line, after perfectly bouncing off support of its 50-day moving average (MA) several days before. Since then GLD, has been consolidating in a tight range, and the spot gold futures market is presently indicating an opening gap of more than 2% in today’s pre-market. If GLD indeed opens more than 2% higher and holds throughout the day, GLD will have broken out above key resistance of its long-term downtrend line. If that occurs, bullish momentum could carry GLD much higher in the short to intermediate-term. To take advantage of that possibility, we remain positioned in both Gold Double Long (DGP) and Market Vectors Gold Miners (GDX). Unlike GLD, which roughly moves in lockstep with the spot gold futures market, DGP is leveraged to move at double the percentage movement of spot gold.
In addition to gold, we also like the pattern forming on silver, as illustrated with the daily chart of iShares Silver Trust (SLV) below:
Like DGP, notice that SLV kissed support of its 50-day MA last week, then promptly moved higher. During that recent pullback, we closed our SLV position, but promptly replaced it with DGP instead. Now that SLV is starting to show relative strength again, it’s worthy of a buy entry. However, we may not “officially” enter SLV because we already have sufficient exposure in the precious metals sector. If buying SLV, wait for a breakout above the December and January highs, over the $11.50 level. The recent highs are marked by the red horizontal line on the chart above.
Those looking for a bearish ETF setup may want to keep an eye on the UltraShort Oil and Gas ProShares (DUG), which is inversely correlated to the price movement of its underlying sector. Last week, DUG moved above resistance of its multi-month downtrend line, and has been chopping around in a sideways range since then. If it rallies above the high of its short-term range, it will correlate to a breakout above both its 50 and 200-day moving averages as well. Such action would help to confirm the recent drift about the multi-month downtrend line. Check out the daily chart of DUG below:
If you read yesterday’s commentary, you should not have been surprised by the market’s sell-off that followed that day. Since the entirety of the text was an analysis of the market’s indecisive action as of late, it was merely par for the course that Wednesday’s strong gains were met by a substantial amount of selling on Thursday. Fortunately, we avoided losses by sticking to our plan of doing nothing — at least until the market confirms the direction of its next movement. If you’re not in ETFs with low correlations to the overall stock market direction, cash remains king.
Today’s Watchlist:
We may add to our winning DGP position if it confirms the breakout above its weekly downtrend line, and will send an Intraday Trade Alert if we do. Traders may also consider buying SLV on a breakout, though we will probably not “officially” enter in our model ETF account. DUG and BBH are other potential buys on our watchlist, depending on which way the overall market eventually breaks out. Overall though, we’re content to merely maintain our DGP and GDX positions because there are very few quality ETF trade setups right now.
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):
- 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.
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DGP long (350 shares from Jan. 15 entry) –
bought 15.60, stop 13.78, target 21.70, unrealized points = + 1.76, unrealized P/L = + $616
GDX long (150 shares from Dec. 26 entry) –
bought 31.40, stop 26.48, no target (will trail stop), unrealized points = + 0.06, unrealized P/L = + $9
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $10,795
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader