Commentary:
Monday’s correction proved to be rather short-lived, as the major indices snapped back to zoom above last week’s highs. Stocks opened near the flat line, drifted higher throughout the morning, then picked up bullish momentum in the afternoon. The Nasdaq Composite jumped 4.1%, the S&P 500 3.2%, and the Dow Jones Industrial Average 2.5%. The small-cap Russell 2000 and S&P Midcap 400 indices climbed 4.5% and 3.7% respectively. It’s bullish that the relative weakness the Nasdaq Composite displayed the previous day only lasted one session, as the index reclaimed leadership yesterday. Each of the main stock market indexes closed at its absolute best level of the day.
Yesterday was the third time within the past week that the major indices scored large gains of more than 3%. However, one differing factor between yesterday and the other two instances was that higher volume failed to accompany the strong advance. Total volume in the NYSE declined 21%, while volume in the Nasdaq was 2% lower than the previous day’s level. In both exchanges, volume was below average levels. Trading in the NYSE also limped in to register its lowest level in a month. Such a slow pace would have been perfect if yesterday was a “down” day, but it’s the opposite of what the bulls want to see on a strong day of gains. Higher turnover would have instead given yesterday’s rally the increased “punch” resulting from institutional buying, such as was the case on March 10 and 12.
In yesterday’s Wagner Daily, we looked at the potential buy setups of DB Commodity Index Fund (DBC) and U.S. Oil Fund (USO). As anticipated, both ETFs broke out above their short-term consolidations, officially triggering our buy entry into USO. Since this is the first time USO has closed above its 50-day moving average in eight months, we expect bullish momentum to send it higher, at least in the short to intermediate-term. On the daily chart below, we’ve circled our approximate target area in USO, which is a test of its January 2009 high:
U.S. Gasoline Fund (UGA), a sibling of USO, also broke out above a substantial band of price consolidation yesterday, hinting at the likelihood of increasing gas prices at the pump in the coming days and weeks. Notably, volume in UGA also spiked to twice its average level, pointing to buying interest on the part of institutions:
Recently, we illustrated how last week’s broad-based market reversal was a “V bottom” formation, indicating the angle of the preceding downtrend was roughly equal to the angle of the new (short-term) uptrend. This pattern often makes it challenging for risk-averse traders to capitalize on the rally. But one of our favorite ways to jump into a high-momentum rally in the broad market, while taking only minimal risk, is to wait for one of the major indices to pull back and “undercut” support of its 20-period exponential moving average on the hourly chart (20-EMA/60 min.), then buy the first move back above it. The “undercut” is bullish because it shakes out the “weak hands” who sell at the first sign of a pullback, thereby eliminating a degree of overhead supply. Then, as prices move back up, those same people end up chasing the price higher, looking for a re-entry, and contributing to the bullish momentum.
Because there was a lot of broad market divergence in Monday’s pullback, both the S&P 500 and Dow held above their 20-EMAs/60 min., but the Nasdaq brothers (Nasdaq Composite and Nasdaq 100) “undercut” the 20-EMA/60 min. This gave us a heads-up to watch the performance of the Nasdaq in yesterday’s session, as a quick recovery back above the 20-EMA/60 min. presented a decent buy entry. One hour after yesterday’s opening bell, we observed the Nasdaq was not only holding above its 20-EMA/60 min., but was showing bullish divergence to the other main stock market indexes as well. As such, we sent an Intraday Trade Alert to subscribers, informing them we were buying Ultra QQQ ProShares (QLD), the leveraged ETF that tracks the performance of the Nasdaq 100 Index. The QLD “undercut” of its 20-EMA/60 min. is shown on the hourly chart below:
With the Nasdaq 100 back above its 50-day moving average, QLD is now looking more promising for the intermediate-term, as well as short-term. However, given the light volume of yesterday’s rally, we would not be surprised if QLD pulled back within the next several days. Still, even if it does, our entry price was low enough that we can now withstand a substantial pullback, while risking only a minimal amount of initial capital. Presently, QLD is already showing an unrealized gain of 5% (1.3 points) since yesterday morning’s entry.
In case you are not aware, today is a “Fed day.” At 2:15 pm ET, the Federal Reserve Board is scheduled to announce any changes to economic policy. With the Fed Funds Rate already at zero percent, traders’ focus will be on the interpretation of forward-looking comments made by the Fed, rather than whether or not interest rates are lowered. As per standard Fed day protocol, we expect subdued trading in the first half of the day, followed by high volatility and whippy trading later in the afternoon.
Today’s Watchlist:
There are no new setups in the pre-market today. Since we entered two new trades yesterday, we now have five open positions. This is sufficient under current market conditions, especially ahead of a Fed meeting. Still, with four of our positions being commodity-related, our overall exposure to the direction of the broad market is limited.
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):
- The USO setup listed in yesterday’s Wagner Daily triggered for buy entry. Also, per Intraday Trade Alert, we bought QLD yesterday. Trade details listed above.
- 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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QLD long (350 shares from March 17 entry) – bought 23.97, stop 22.18, target 28.27, unrealized points = + 1.27, unrealized P/L = + $445
UGA long (175 shares from March 4 entry) – bought 23.41, stop 20.49, target 31.30, unrealized points = + 0.94, unrealized P/L = + $165
USO long (150 shares from March 17 entry) – bought 29.08, stop 25.18, target 38.70, unrealized points = + 0.36, unrealized P/L = + $54
SLV long (400 shares from March 5 entry) – bought 13.14, stop 11.69, target 16.35, unrealized points = (0.54), unrealized P/L = ($216)
DGP long (300 shares total; 200 from Feb. 26, 100 from March 12) –
bought 20.67 (avg.), stop 18.32, target new high (will trail stop), unrealized points = (1.02), unrealized P/L = ($302)
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $28,456
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader