Commentary:
Stocks got off to a higher start yesterday morning, but reversed lower after testing resistance of their previous day’s highs. The major indices subsequently trended south throughout the afternoon before settling near their recent lows. The Dow Jones Industrial Average fell 1.2% and the S&P 500 lost 1.6%. The Nasdaq Composite, which had formerly been showing relative strength within the broad market, showed bearish divergence yesterday. The tech-heavy Nasdaq declined 2.4%. The small-cap Russell 2000 and S&P Midcap 400 indices shed 2.1% and 1.8% respectively. All the main stock market indexes closed near their worst levels of the day.
Lower turnover across the board helped temper the pang of yesterday’s losses. Total volume in the NYSE was 14% lower than the previous day’s level, while volume in the Nasdaq declined 2%. Still, trading remained above 50-day average levels, which is negative on a day of losses. On February 24, the Nasdaq Composite scored an “accumulation day” by rallying on higher volume, but the index marked a bearish “distribution day” in the following session. Until we see a string of higher volume gains in the broad market, which sets the pace for a sustainable rally, we must be prepared for continued chop and indecision.
In yesterday’s Wagner Daily, we discussed the potential buy setups that were forming in SPDR Gold Trust (GLD) and iShares Silver Trust (SLV). To refresh your mind of the deails, we said, “Now that GLD and SLV are approaching support of their 20-day exponential moving averages, we’ll be closely monitoring for a potential re-entry on the long side. When buying a pullback of a steadily uptrending ETF, we like to wait for confirmation that the short-term correction has run its course before jumping back in. After the pullback, we specifically look to buy the first breakout above the hourly downtrend line that formed during the retracement off the recent high. The 20-period exponential moving average on the hourly chart often converges with that ultra short-term downtrend line that forms. With this type of play, realize our goal is not to catch the bottom of the pullback; rather, we aim to catch the meat of the next move that occurs after the ETF confirms it’s ready to move back up.”
Yesterday, GLD dipped briefly below its 20-day EMA, shaking out the “weak hands,” but reversed to close at its intraday high. Upon noticing this action, we bought back into Gold Double Long (DGP), which follows a very similar pattern to GLD, but is leveraged to move at twice the percentage gain or loss. Closing the day with a bullish “hammer” candlestick, both GLD and DGP are now positioned to resume their primary uptrends. The daily chart of GLD below illustrates this:
Even though GLD has not yet rallied above its hourly downtrend line or 20-period EMA on the hourly chart, the February 26 probe below the 20-day EMA and subsequent intraday reversal was bullish enough to prompt us to enter with a partial position. So far, we bought only half the shares we intend to accumulate, but may add the remaining shares when GLD confirms its reversal by rallying above the hourly downtrend line (above the $94 area). Although not illustrated, SLV has a similar pattern and can be managed in the same way. The trigger for potentially buying additional shares of GLD is shown on the hourly chart below:
Because some retirement accounts are forbidden from buying exchange traded notes (ETNs) such as DGP, we used GLD in our examples above, rather than DGP. Since both symbols roughly follow the same pattern, traders who are unable to purchase DGP may wish to buy GLD instead. The GLD position can subsequently be managed based on our actions in DGP.
As we enter the last trading day of the month, the main stock market indexes are poised to open near the lows of their five-day consolidation patterns. On February 24, prior support of the S&P 500’s low from November 2008 gave stocks a good excuse to rally on higher volume. But now, just two days later, the index has given back a majority of that day’s gain. Worse is the Nasdaq Composite, which has erased nearly all of that day’s gain. Based on the inability of stocks to retain that day’s gains, it looks as though the broad market may be headed for another leg down, pulling all the major indices firmly below their November 2008 lows. However, let us remind you we’re in a very news-driven market; right now, the market simply feels as if it’s waiting for some kind of news to lend an excuse for at least a short-term rally. The bottom line is that the market’s mixed signals means caution is in order on both sides of the market. Since our only open ETF position is Gold Double Long (DGP), it feels good to be able to avoid the broad-based choppiness affecting stocks in a plethora of sectors. Cash is king…or is gold?
Today’s Watchlist:
CurrencyShares Euro Trust (FXE)
Long
Shares = 250
Trigger = $128.90 (above the recent consolidation and 20-day EMA)
Stop = $126.72 (below the four-day consolidation)
Target = $132.90 (resistance of 50-day MA)
Dividend Date = n/a
Notes = This setup did not yet trigger, but remains on our watchlist going into today. As per the February 23 commentary, note this is intended to be a short-term trade that takes advantage of momentum from a countertrend bounce. If it triggers for entry, our expected time horizon for the trade is just 2 to 5 days. Subscribers not comfortable with such a short holding period may wish to pass on this trade.
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 Trade Alert, we bought a partial position of DGP yesterday. As per the commentary above, we may add to the position when it breaks out above its hourly downtrend line. If we do, we’ll promptly send an Intraday Trade Alert with details. If no alert received, assume we did NOT add to the position.
- FXE still has not triggered, but we’ll give it another day and see how it goes. If it doesn’t trigger today, we may cancel the setup next week.
- 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 [email protected] if not already set up for this value-added feature we provide to subscribers.
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DGP long (200 shares from Feb. 26 entry) – bought 20.90, stop 18.32, target new high (will trail stop), unrealized points = + 0.14, unrealized P/L = + $28
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $4,208
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader