Commentary:
The main stock market indexes gapped approximately 1% lower on the open, but stocks shook off early weakness to finish near the flat line and with mixed results. The S&P 500 advanced 0.3%, the Nasdaq eked out a gain of 0.1%, and the Dow Jones Industrial Average slipped 0.3%. The small-cap Russell 2000 and S&P Midcap 400 indices both finished less than 0.1% lower. Most of the major indices closed in the upper quarter of their relatively narrow intraday ranges. The Dow settled just above the middle of its range.
Turnover eased substantially, indicating institutions were on the sidelines in yesterday’s quiet session. Total volume in the NYSE declined 20%, while volume in the Nasdaq was 15% lighter than the previous day’s level. Trading in both exchanges fell back below average levels. Market internals were mixed. In the NYSE, advancing volume exceeded declining volume by a margin of 2 to 1. The Nasdaq adv/dec volume ratio was fractionally negative.
The U.S. dollar sold off yesterday, causing several currency ETFs to break out above short-term resistance levels. One of those was PowerShares U.S. Dollar Bear (UDN), which we have been long since March 25. The daily chart of UDN is shown below:
On March 18, UDN surged higher to break out above resistance of its 50-day moving average (the teal line). After moving higher the following day, UDN subsequently began building a base of consolidation, holding above new support of both its 20 and 50-day moving averages. This caused a multi-week downtrend line to form on the daily chart, which UDN broke out above yesterday. In the coming week, look for upside follow-through in UDN. A close above the March 19 high of $25.96 would be particularly bullish for this setup, as it would cause the intermediate-term trend to shift to bullish as well. Presently, our stop is just below the 50-day moving average, but we’ll trail it higher if/when UDN makes a new “swing high.”
Energy shares got off to a weak start yesterday morning, but recovered alongside of the broad market. We closed our long position in Energy Bull 3X (ERX) yesterday morning, for a small profit, after it broke below its opening 20-minute low. However, with the afternoon recovery, the sector is still poised for breakout in the coming days. Upon comparing the various energy ETFs, we’ve concluded Oil Service HOLDR (OIH) has been showing more relative strength than other ETFs in the sector. If it rallies above yesterday’s high, it will break out above a multi-week band of horizontal price resistance, thereby triggering our buy entry. The setup is illustrated on the daily chart below:
With the stock market in a steady uptrend for the past five weeks, there’s no doubt the bulls have had the upper hand recently. But one thing we don’t like is that the major indices have been rallying into quarterly earnings season, which kicks into full swing this week. This is potentially negative because optimistic expectations of earnings reports that may be better than expected are now being built into the price of stocks. This means stocks may need to report positive earnings surprises just to maintain their current prices. Otherwise, there’s likely to be post-earnings selling into strength. Last night’s earnings report from Goldman Sachs is a good example of this.
After the close of trading, financial leader Goldman Sachs (GS) reported 5% earnings growth, more than double Wall Street’s expectations. Yet, despite rising 5% in the regular session, GS was trading more than 2% lower in the after-hours session. This is easily explained by the fact that GS has been steadily rising for weeks. Conversely, if GS had not already been rallying so strongly, last night’s earnings report would likely have been followed by higher prices after-hours.
Johnson and Johnson (JNJ) is slated to report before today’s open, while chip giant Intel (INTC) will announce their latest results after today’s close. On Thursday morning, banking behemoth JP Morgan Chase (JPM) will detail their quarterly results, while Google (GOOG) will do so after Thursday’s close. Numbers from General Electric (GE) and Citigroup (C) are on tap for Friday’s session. Of course, hundreds of other companies will also report this week.
There’s been no technical reason to suggest it’s time to jump back on the short side of the market, and we’re not recommending such action. However, given that most companies have been rallying into earnings, it pays to be very cautious over the next few weeks, especially with nearby resistance of the February highs in the S&P 500 and Dow Jones Industrials (as illustrated in yesterday’s commentary). If you own individual stocks, be sure to know when they will report earnings, lest you potentially be blindsided. Our general policy is to exit individual stocks ahead of earnings reports, but this is less of a concern with the benefit of diversification provided by ETFs.
Today’s Watchlist:
There are no new ETF setups in the pre-market. However, we’re monitoring OIH for potential buy entry, depending on how it acts after the open. If we buy OIH today, we’ll promptly send an Intraday Trade Alert with details. 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):
- ERX hit our adjusted stop yesterday (sent by Intraday Alert), after it fell below its opening 20-minute low. Though we still made a small profit on the trade, the sector recovered later in the afternoon. Because it has been showing more relative strength, Oil Service HOLDR (OIH) is a better potential buy entry, rather than re-entering ERX.
- Stops in red text above have been updated.
- 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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HHH long (200 shares from March 23 entry) – bought 35.25, stop 37.89, target 41.80, unrealized points = + 3.41, unrealized P/L = + $682
TAN long (500 shares from March 31 entry) – bought 7.05, stop 7.47, target 9.75, unrealized points = + 0.73, unrealized P/L = + $365
UGA long (175 shares from March 4 entry) – bought 23.41, stop 23.17, target 31.30, unrealized points = + 1.35, unrealized P/L = + $236
USO long (150 shares from March 17 entry) – bought 29.08, stop 28.92, target 38.70, unrealized points = + 0.60, unrealized P/L = + $90
UDN long (700 shares from March 25 entry) – bought 25.70, stop 24.84, target 27.45, unrealized points = (0.19), unrealized P/L = ($133)
SLV long (400 shares from March 5 entry) – bought 13.14, stop 11.71, target 16.35, unrealized points = (0.57), unrealized P/L = ($228)
Closed positions (since last report):
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ERX long (150 shares from April 1 entry) – bought 24.52, sold 25.21, points = + 0.69, net P/L = + $101
Current equity exposure ($100,000 max. buying power):
- $43,292
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader