Commentary:
After opening substantially lower last Friday morning, stocks feebly attempted to recover throughout the morning, but the bears resumed control in the afternoon, causing the major indices to finish near their morning lows. The Nasdaq Composite fell 1.0%, the Dow Jones Industrial Average 1.7%, and the S&P 500 2.4%. The small-cap Russell 2000 and S&P Midcap 400 indices declined 1.0% and 0.8% respectively. Closing lower for the seventh week of the past eight, the S&P 500 also joined the Dow by violating support of its November 2008 low. Both the S&P 500 and Dow Jones Industrial Average now stand at their lowest levels since 1997.
Driven by a 1.8 billion share volume spike in Citigroup (C), total volume in the NYSE swelled 51% above the previous day’s level. Trading in the Nasdaq rose just 7%, but still indicated the presence of institutional selling. Declining volume in the NYSE exceeded advancing volume by a margin of approximately 4 to 1. The Nasdaq adv/dec volume ratio was negative by less than 2 to 1.
The Nasdaq Composite still remains above support of its November 2008 low, but just broke support of its January 2009 lows. With the S&P and Dow now at fresh 11-year lows, it may be only a matter of days until the Nasdaq falls to join those indexes as well. The lack of significant areas of prior price support to slow the decline is obviously bad news for long-term “buy and hold” investors. However, it may actually be beneficial to short-term “trend traders” because another leg down in the stock market should be more tradeable than the sideways, indecisive action the market has exhibited for the past several months. Accordingly, several of the inversely correlated “short ETFs” are now poised to break out above bands of price consolidation, creating potential trade opportunities. One such ETF is UltraShort Real Estate ProShares (SRS):
With the 20-day exponential moving average (the beige line) providing support below, SRS is now positioned to break out above resistance of its 200-day moving average (the orange line), which converges with the highs of its recent consolidation. If it does, SRS can be bought above the $88.75 area. Another ETF we’re monitoring for a potential swing trade is UltraShort Emerging Markets ProShares (EEV); its daily chart is annotated below:
The chart of EEV is similar to SRS, in that the 20-day EMA is acting as support while EEV consolidates in a tight range. But one difference is that the 200-day MA is still well above the current price of EEV. With this setup, we’re looking for a potential buy entry above the February 23 high of $65.13.
Like many of the UltraShort ETFs, both SRS and EEV are quite volatile. If trading either ticker, be sure to adjust your share size accordingly, in order to account for the rather wide stop that is necessary. Also, as recently discussed in this newsletter, remember the UltraShort sector ETFs are generally better for short-term “momentum” trading than long-term holding. When holding over the long-term, they significantly underperform the corresponding indexes due to daily portfolio adjustment of their derivative contracts.
In last Friday’s Wagner Daily, we said we were planning to add to our position in Gold Double Long (DGP) when it moved above resistance of its hourly downtrend line and 20-day EMA. However, because that move occurred in the form of an opening gap, we waited to see whether or not the gap would hold before making a decision to buy additional shares. Fortunately, we held off, as both silver and gold subsequently reversed later in the morning. Now, the anchor points of the hourly downtrend line have been adjusted to connect with last Friday’s opening highs. This means the new level to consider adding additional shares is above the $21.30 area (around $93.50 for GLD). Again, we’ll take it slowly before jumping in with additional shares, as we want to ensure gold provides adequate confirmation of stabilization on the pullback.
Today’s Watchlist:
As per the commentary above, we’re monitoring both SRS and EEV for potential buy entry. We’re also keeping an eye on SMN and DUG as possible setups. But due to the large pre-market loss the S&P futures contracts are showing, we’re going to wait and assess price action of these ETFs on the open, rather than listing detailed trigger and stop prices in our watchlist here. If we enter anything new, we will promptly send an Intraday Trade Alert to your e-mail and/or mobile phone.
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):
- No changes to our sole position in DGP.
- Euro Trust (FXE) did not trigger last week, and has been removed from our watchlist.
- 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 = (0.11), unrealized P/L = ($22)
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $4,158
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader