Commentary:

Stocks feebly attempted to rebound from Tuesday’s nasty decline, causing the major indices to finish modestly in positive territory yesterday. The broad market opened slightly higher, then chopped around in a sideways range throughout the rest of the day. Just after mid-day, stocks briefly dipped to new intraday lows, but trading rebounded into the close. The S&P 500 advanced 0.8%, the Dow Jones Industrial Average 0.6%, and the Nasdaq Composite 0.4%. The small-cap Russell 2000 bounced 0.5%, as the S&P Midcap 400 eked out a 0.3% gain. The large-cap brethren of the Nasdaq Composite, the Nasdaq 100 Index, was the only index to finish in the red. Weighed down by a negative earnings report from Blackberry maker, Research in Motion (RIMM), the Nasdaq 100 lost 0.2%. The main stock market indexes settled just above the middle of their intraday ranges.

Lighter turnover accompanied yesterday’s rebound attempt, pointing to a disappointing lack of buying interest amongst mutual funds, hedge funds, and other institutions. Total volume in the NYSE declined 22%, while volume in the Nasdaq eased 9% below the previous day’s level. Despite a small gain in the Nasdaq Composite, declining volume in the Nasdaq exceeded advancing volume by approximately 3 to 2. The NYSE adv/dec volume ratio was positive by just 2 to 1. Considering the bearishness of the previous day’s market internals, yesterday’s rebound attempt was not impressive.

Overall market action was lackluster yesterday, but one sector that powered ahead was precious metals. Spot gold, which had been consolidating above its 200-day moving average for the past several weeks, broke out above the high of its recent range, enabling the shiny commodity to close at its highest level since July of 2008. This enabled our existing long position in Gold Double Long (DGP) to jump 4.9% yesterday. On the daily chart of DGP below, notice the volume spike that coincided with yesterday’s breakout:

Our other position in precious metals, Market Vectors Gold Miners (GDX), also motored higher yesterday. In the February 9 issue of The Wagner Daily, we pointed out the bullish consolidation of GDX, which was poised to break out above its tight consolidation and bust through resistance of its 200-day moving average. As the daily chart below illustrates, that anticipated breakout came yesterday:

Now that both DGP and GDX have moved above the highs of their recent consolidations, we’ve trailed our protective stops higher. This enables us to still lock in a significant portion of our unrealized gains in the event of a failed breakout. Since our “official” buy entries, DGP has rallied more than 27% and GDX has gained 15%. Now that both positions are showing large gains, we will begin trailing our stops progressively tighter, using the short-term 10-day moving averages as a guide. Alternatively, we’ll consider selling into strength if gold presents us with a large opening gap higher in the coming days. Though gold is entering into a renewed, long-term uptrend, we’re not interested in sitting through a potentially large intermediate-term correction.

Recently, we used “percentage change charts” to illustrate the relative strength several of the emerging markets ETFs had been demonstrating. One of those ETFs was iPath India Index (INP), which we bought on February 9. The following day, we displayed this chart that illustrated the relative strength of INP:

From the January 20 “swing low” in the S&P 500, through the close of trading on February 9, INP had gained 13.5%, versus a gain of just 6.6% in the S&P 500. In our February 10 commentary, we reminded you that, “ETFs with relative strength are the first to surge higher when the overall market moves higher, and the last to fall when the broad market goes down.” Since the broad market has fallen substantially over the past two days, let’s take an updated look at the relative performance of INP versus the S&P 500:

Since its January 20 “swing low,” notice the S&P 500 is now showing a gain of just 2.2%. However, INP is still showing a very respectable gain of 11.6%. Although INP fell alongside of the S&P 500 on February 10, it rebounded much stronger than the S&P 500 the following day. The end result is that the S&P 500 has lost approximately 4.4% over the past two days, but INP has lost less than 2%. On the chart above, notice that INP is also relatively near its February 9 high. Conversely, the S&P 500 has already fallen to test its February 4 low. The price action of the past two days is a clear educational example of how ETFs with relative strength fall less than the broad market on the “down” days, while outperforming the gains of the broad market on the “up” days.

Yesterday, we analyzed key support levels on the daily charts of the major indices. Since the overall market closed slightly higher yesterday, those same support levels remain in effect. The technical picture of the broad market has not changed either, though closing prices below the February 10 lows in today’s session would have bearish implications. Until the major indices make a decisive move out of their choppy trading ranges, we’re content to simply manage our existing positions.

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Today’s Watchlist:

There are no new setups in the pre-market today. As always, we’ll send an Intraday Trade Alert if we spot anything we decide to enter today.

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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):
DGP long (450 shares total — 350 from Jan. 15 entry, 100 from Jan. 23 entry) –

bought 16.20 (avg.), stop 18.29, target 21.70, unrealized points = + 4.51, unrealized P/L = + $2,030

GDX long (150 shares from Dec. 26 entry) –

bought 31.40, stop 32.78, no target (will trail stop), unrealized points = + 4.93, unrealized P/L = + $740

IBB long (150 shares from Feb. 3 entry) –

bought 72.12, stop 68.52, target 78.80, unrealized points = + 0.44, unrealized P/L = + $66

UGA long (200 shares total — 100 from Jan. 29 entry, 100 from Jan. 30 entry) –

bought 23.42 (avg.), stop 21.48, target 30.45, unrealized points = + 0.33, unrealized P/L = + $66

INP long (200 shares from Feb. 9 entry) –

bought 31.30, stop 28.18, no target (will trail stop), unrealized points = (0.47), unrealized P/L = ($94)

Closed positions (since last report):

(none)

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

$36,569

Notes:

• We’ve trailed stops higher on both DGP and GDX, and will continue to tighten both stops as price action dictates. Also, note that DGP is approaching our original price target of $21.70; we will automatically sell into strength if that price is hit.
• 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.
• 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 support@morpheustrading.com if not already set up for this value-added feature we provide to subscribers.

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Edited by Deron Wagner,
MTG Founder and
Head Trader