Commentary:
Digesting gains of the previous day’s massive rally, stocks gave back a piece of that advance yesterday, but the major indices held above new support of their 50-day moving averages. The broad market opened significantly lower, then oscillated in a sideways range throughout the entire session. The Dow Jones Industrial Average fell 1.5%, the S&P 500 2.0%, and the Nasdaq Composite 2.4%. The Russell 2000 shed 3.9%, but the small-cap index conversely led with an 8.4% gain on Monday. The S&P Midcap 400 lost 2.5%. Selling pressure in the final fifteen minutes of trading caused the main stock market indexes to close at their intraday lows.
One positive aspect of yesterday’s session is that the losses occurred on declining volume. Total volume in the NYSE receded 14%, while volume in the Nasdaq was 9% below the previous day’s level. Yesterday’s lighter turnover on the pullback was an important element to the sustainability of the current rally; another day of institutional selling (aka “distribution day”) would have been bearish. In the NYSE, declining volume exceeded advancing volume by a margin of nearly 5 to 1. The Nasdaq adv/dec volume ratio was negative by just 3 to 1.
After trending higher throughout all of 2009, the U.S. dollar recently reversed course, sparked by last Wednesday’s announcement that the Fed would begin buying $300 billion in long-term U.S. treasuries. Since then the dollar has tried to recover from its large March 18 drop, but has been unable to make much headway. This swift trend reversal has created a potential buying opportunity in PowerShares U.S. Dollar Bearish Fund (UDN), which moves higher as the value of a basket of foreign currencies gains against the U.S. dollar. Below, the weekly chart shows that UDN has reversed its long-term downtrend. The shorter-term daily chart that follows illustrates the potential buy point in the coming days:
On the daily chart, we’ve annotated the “bull flag” pattern that has developed. This pattern, which indicates a likelihood of an upward trend resumption, is buyable when the price of UDN rallies above the upper channel of the ultra short-term downtrend from the March 19 high. That correlates to a buy entry just above yesterday’s high of $25.68. A protective stop can be neatly placed below the 20 and 50-day moving averages, just below the $25 level and the March 18 low. If trading UDN, be sure to adjust your share size to compensate for its rather low volatility and ATR (average true range).
As the dollar sold off last Wednesday, SPDR Gold Trust (GLD) rocketed higher. Since then, it has drifted lower, but is now trading at support of its 50-day MA, which has perfectly converged with its primary uptrend line. This creates an ideal buying opportunity in GLD (or DGP if you prefer the leveraged flavor of gold), right above yesterday’s high of $91.66. Just be sure not to “jump the gun” by buying GLD before it moves above yesterday’s high. The buy setup in GLD is shown below:
When the stock market scores a monstrous rally, as it did on Monday, professional traders closely observe whether or not the major indices surrender any of those gains the following day. If stocks do pull back, the key point is by what percentage. Although stocks lost approximately 2% yesterday, the losses were not that large considering the degree of the previous day’s advance. The S&P 500 and Dow Jones Industrials both retraced about 25% of Monday’s gains, while the Nasdaq Composite retraced to the 38.2% Fibonacci retracement level. More importantly, all the indexes held above their 50-day moving averages, an area of resistance that stocks have been unable to hold above in recent months. As long as the 50-day MAs hold up, and we don’t see a session of higher volume selling, both the short and intermediate-term trends remain “up.”
Today’s Watchlist:
PowerShares U.S. Dollar Bearish Fund (UDN)
Long
Shares = 700
Trigger = $25.70 (above yesterday’s high)
Stop = $24.84 (right below the 50-day MA)
Target = $27.45 (spike above resistance of the Dec. 2008 high)
Dividend Date = n/a
Notes = See commentary above for explanation of the setup.
Note that GLD also looks good for entry above yesterday’s high. However, since we already have Silver (SLV), we’re looking to buy UDN, rather than assuming additional exposure in precious metals. SLV also showing more rel. strength than GLD, so we’re in the right ETF in that sector.
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 the open positions 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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UGA long (175 shares from March 4 entry) – bought 23.41, stop 20.49, target 31.30, unrealized points = + 2.34, unrealized P/L = + $410
USO long (150 shares from March 17 entry) – bought 29.08, stop 25.18, target 38.70, unrealized points = + 2.53, unrealized P/L = + $380
SLV long (400 shares from March 5 entry) – bought 13.14, stop 11.69, target 16.35, unrealized points = + 0.11, unrealized P/L = + $44
HHH long (200 shares from March 23 entry) – bought 35.25, stop 32.49, target 41.80, unrealized points = (0.22), unrealized P/L = ($44)
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $21,554
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader