Commentary:
Fighting off a significantly lower open, broad market indices held the opening range lows, and ripped higher through much of the session to close in positive territory. Some late afternoon selling forced the averages to close off the highs of the session, but overall the reversal action was positive. The S&P Midcap 400 led Friday’s reversal with a 1% gain, with the Nasdaq Composite not far behind at 0.8%. The S&P 500 and small-cap Russell 2000 added 0.5% and 0.3% respectively. The Dow Jones Industrials was the only average to close negative (down just 0.6%), however, the Dow finished in the top third of the day’s range, forming a bullish reversal candle.
Total volume dropped 9% off the prior day’s pace on the NYSE and 7% on the Nasdaq. While Friday’s reversal off the lows showed some promise, the light volume rally failed to make any headway on the daily charts, as the major averages are still trading in a very tight range (see chart of S&P 500 below):
Last week we discussed the bullish technical action in metals, as SPDR Gold Trust (GLD) and iShares Silver Trust (SLV) were both setting up to break out above the highs of the current range, thereby confirming the break of a six month downtrend line. Friday’s action was the bullish confirmation we were looking for, as both GLD and SLV gained nearly 5% on a big volume breakaway gap up. Feeding off the strength in spot gold, our two long positions Gold Double Long (DGP) and Market Vectors Gold Miners (GDX) closed up 10% and 8% respectively.
The financial sector has weighed down the S&P 500 over the past few weeks, led by the sharp selloff in the banking index. The ugly chart of the HOLDRS Regional Bank ETF (RKH) below has lost momentum to the downside, and looks ready for a short-term bounce from oversold conditions. If so, that would certainly give a nice boost to the S&P 500. We are not monitoring RKH for a long or short entry, just following the action closely for clues on broad market direction.
Though the tight-ranged action in the broad market tells us to prepare for a move out in either direction, we are leaning towards a move to the upside. Given the lack of leadership in the market and overhead resistance, we do not expect too much from any broad market rally. Looking at the chart of the S&P 500 below we see resistance from the 20 & 50-day moving averages, as well as the prior highs in December around 900. While we could see the S&P push through the moving averages, we are doubtful that there is enough buying power to penetrate through 900. A close beneath the lows of the range (below 803) should lead to new lows.
Today’s Watchlist:
We will continue to lay low until there is a clear breakout (up or down) in the market. We are still monitoring the action in DUG should the market break down from here. If you’re not in ETFs with low correlations to the overall stock market direction, cash remains king.
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):
- Per intraday alert, we added 100 shares to our position in DGP on the open.
- 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 (450 shares from Jan. 15 & 23 entries) –
bought 16.20(avg), stop 16.45, target 21.70, unrealized points = + 2.90, unrealized P/L = + $1,301
GDX long (150 shares from Dec. 26 entry) –
bought 31.40, stop 26.48, no target (will trail stop), unrealized points = + 2.74, unrealized P/L = + $410
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $13,716
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader