Commentary:
Stocks concluded the week on a negative note, as the major indices gave back a majority of the previous day’s large gains. Nevertheless, the broad market still advanced for the third straight week. Last Friday, the Dow Jones Industrial Average lost 1.9%, the S&P 500 2.0%, and the Nasdaq Composite 2.6%. The small-cap Russell 2000 shed 3.7% and the S&P Midcap 400 fell 2.5%. Most of the day’s decline was the result of an opening gap down, as stocks subsequently traded in a tight, sideways range, all the way into the closing bell. For the week, the Dow Jones Industrials climbed 6.8%, the S&P 500 6.2%, and the Nasdaq Composite 6%.
Lighter turnover accompanied last Friday’s losses, easing the sting of the decline. Total volume in the NYSE receded 20%, while volume in the Nasdaq was 18% lighter than the previous day’s level. The substantially slower pace of trading was positive, as it indicated mutual funds, hedge funds, and other institutions were not active participants in the selling. Still, market internals were firmly negative. In the NYSE, declining volume exceeded advancing volume by a margin of 7 to 1. The Nasdaq adv/dec volume ratio was negative by 3 to 1.
If you’re concerned about initiating new long positions at current levels, you may want to check out some of the fixed-income (bond) ETFs. Not only do treasury bonds offer a relatively safe place to park cash, but technical analysis can also be used to time a buy entry in which, in addition to monthly dividend distributions, capital gains are most likely to be realized as well. Check out the daily chart of the iShares 1-3 year (short-term) Treasury Bond (SHY):
Circled in pink, notice how SHY has been consolidating right at resistance of its 50-day moving average. In the coming days, we anticipate a breakout above the high of its recent range ($84.21), which will enable SHY to move back above its 50-day MA as well. That would be a logical place to initiate a new buy entry for an intermediate to long-term hold in the treasury bond markets.
Because SHY has a very low volatility (it has traded in a range of just one point all year), it is not advisable to treat this as a short-term trade. There simply isn’t enough beta to turn a decent profit. However, when viewed as a long-term trade, perhaps in an IRA account, one additionally benefits from the major advantage of bond ETFs — regular dividend distributions. Over the past year, for example, SHY has paid monthly to bi-monthly dividends, averaging approximately 25 cents per share, which adds up in the long-term. But if you’re looking to profit from short-term trading of the bond ETFs, consider the iShares 20+ year (long-term) Treasury Bonds (TLT) instead, as it has a much wider trading range. For a list of all the other bond ETFs (with an average daily volume greater than 50,000 shares) download our free Morpheus ETF Roundup.
In our March 27 commentary, we said, “Though the broad market remains in both short and intermediate-term uptrends, resistance of the Nasdaq’s February highs means it may be a good idea to consider just one or two short positions (or inverse ETFs) near current levels, especially if you’re now heavily positioned on the long side of the market. Trailing tight stops on winning long positions isn’t a bad idea either.” Given last Friday’s losses, as well as the S&P and Nasdaq cash futures indication of a sharply lower open to Monday’s session, the market seems to be confirming our suggestion. Yet, since the Nasdaq actually reversed before actually touching its February high, there still may be one more upward thrust, to sucker in a few more bulls, before the market pulls back much further. But if last Friday’s weakness continues straight into today’s session, keep a close eye on whether or not the main stock market indexes manage to hold new support of their 50-day moving averages (792 for S&P 500, 1,463 for Nasdaq Composite, and 7,597 for the Dow).
Last Friday’s setup to buy UltraShort Financial ProShares (SKF) did not yet trade through our trigger price, but will likely do so today. Depending on how high it gaps on the open, we may buy the inversely correlated SKF on a breakout above last Friday’s high (and the 20-EMA/60 minute). But because it was intended to be a quick, momentum-driven bounce play, we need to be sure the risk-reward ratio of the setup is not too negatively skewed if SKF opens too much higher than Friday’s close.
Today’s Watchlist:
The SKF buy setup from last Friday did not yet trigger for entry. Though we’re still monitoring it for potential entry in today’s session, the large opening gap down in the S&P cash futures (as of early Monday morning) means SKF may open much higher than Friday’s close. If such an upside gap holds, it’s actually quite bullish for SKF. However, the risk-reward ratio for the setup could become negatively skewed, as we were considering SKF for just a very quick (2 to 5 days), momentum-driven bounce. On today’s open, we’ll be assessing the price action of SKF and the broad market, and will promptly send an Intraday Trade Alert with details if we decide to buy SKF. If no alert is received, assume we did not buy it.
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):
- SLV stop was raised to be approximately fifty cents below convergence of the 50 and 200-day moving averages.
After our existing positions mark their “swing lows” on this pullback, stops will be raised to just below those lows. For now, the stops remain the same, as leaving a bit of “wiggle room” to hold through a pullback is the only way to potentially realize a significant profit on these positions. Further, only HHH is directly correlated to the direction of the stock market; other positions have a low correlation.
- 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 = + 2.04, unrealized P/L = + $357
USO long (150 shares from March 17 entry) – bought 29.08, stop 25.18, target 38.70, unrealized points = + 1.67, unrealized P/L = + $251
SLV long (400 shares from March 5 entry) – bought 13.14, stop 12.25, target 16.35, unrealized points = + 0.01, unrealized P/L = + $4
HHH long (200 shares from March 23 entry) – bought 35.25, stop 32.49, target 41.80, unrealized points = (0.72), unrealized P/L = ($144)
UDN long (700 shares from March 25 entry) – bought 25.70, stop 24.84, target 27.45, unrealized points = (0.41), unrealized P/L = ($287)
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $38,935
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader