Commentary:
The major indices wrapped up the week by drifting in a tight, sideways range throughout last Friday’s session, before settling modestly higher. The S&P 500 advanced 0.5%, the Nasdaq Composite 0.2%, and the Dow Jones Industrial Average 0.1%. Small and mid-cap stocks, sectors that often outperform in bullish markets, maintained their recent relative strength. The Russell 2000 and S&P Midcap 400 indices posted identical gains of 1.2%. The S&P and Nasdaq closed in the upper third of their intraday ranges. The Dow finished near the middle of its (quite narrow) intraday range.
Total volume in the NYSE jumped 22%, while volume in the Nasdaq ticked just 4% higher. The broad-based gains on higher volume technically caused both the S&P and Nasdaq to register a bullish “accumulation day.” However, much of that faster pace could have been attributed to last Friday being monthly options expiration day. The intraday price action and marginal closing gains were also not very confirming of institutional accumulation. Nevertheless, stocks have still scored two confirmed sessions of higher volume gains within the past week.
Because the precious metals sector is typically viewed as a “safe haven,” recent broad market strength has caused the previously strong gold and silver ETFs to lose their shine. However, for the second time this month, SPDR Gold Trust (GLD) has come into pivotal support of its 200-day moving average. Since it’s common for “double bottoms” to form at 200-day moving averages, we’ll be closely monitoring the performance of GLD in the coming days. Even though investors have not shown much interest in gold lately, we are still bullish on the shiny stuff in the intermediate to long-term, just as long as it holds above its 200-day MA:
On the longer-term weekly chart, shown below, you’ll see GLD has also come into a major area of prior horizontal price support. The key support of the 200-day MA, combined with the prior lows from mid-2008, make a long-term buy entry into GLD attractive. In the short-term, however, it could remain choppy:
One week ago, in the April 13 issue of The Wagner Daily, we illustrated that both the S&P 500 and Dow Jones Industrial Average were approaching major resistance of their late January and early February 2009 highs. We also said we expected the indexes to test those resistance levels sometime last week. Though the Dow is still several percent away from its February highs, the S&P 500 indeed bumped into resistance of its February high last Friday. This is shown on the daily chart below:
If you’ve been absent from the long side of the market, it’s understandable to feel left behind by the market’s recent strength. However, after six straight weeks of gains in the major indices, this is not the time to be chasing stocks and ETFs. Instead, maintain a watchlist of strong long candidates you wish to buy on a pullback, then use the 20-day exponential moving averages as a rough guide for an area of entry. With the S&P 500 now kissing a major area of horizontal price resistance, traders have the perfect excuse to take some chips off the table, thereby triggering a pullback in the market.
If you’re not willing to hold existing long positions through a pullback, be sure to maintain tight trailing stops. Setting stops just below support of the prior day’s lows would make sense in this case. If you’re sitting on stocks or ETFs that are trending well, and you wish to sit through a pullback in anticipation of another leg up, make certain your stops are wide enough to provide the proper “wiggle room” to sit through a normal, healthy price retracement. Of course, there is always the possibility the S&P 500 will ignore resistance of its late January/early February highs, and continue higher for another week. But strictly from a technical point of view, a price retracement or correction by time (consolidation) is likely.
Today’s Watchlist:
ProShares UltraShort China (FXP)
Long
Shares = 400
Trigger = 20.73 (above the April 14 high)
Stop = 19.28 (below the April 17 low)
Target = 27.90 (just below resistance of the Jan. 2009 low)
Dividend Date = n/a
Notes = If FXP rallies above last Friday’s high, it will break out above a downtrend line that has been in place for the past seven weeks. If that happens, we’ll likely see a short-term upward thrust in FXP. Our plan with this trade is merely to capture short-term momentum of a potential breakout above the downtrend line. Intended time horizon of this trade is less than two weeks. Note that FXP is inversely correlated to the direction of iShares China (FXI). As such, buying FXP is similar to selling short FXI.
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):
- We’re now using a very tight stop on UGA because last Friday’s opening breakout attempt fizzled out. Our new stop will still allow us to lock in a profit in the event of a decline today.
- Now that OIH has moved significantly higher, we’ve raised the stop slightly, just to take some risk out of the trade. We’ll continue to trail our stop tighter as OIH trends higher.
- SLV hit our stop, but we continue to watch the precious metals sector near its major support levels.
- 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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OIH long (100 shares from April 14 entry) – bought 83.85, stop 80.80, target 102.40, unrealized points = + 5.64, unrealized P/L = + $564
TAN long (500 shares from March 31 entry) – bought 7.05, stop 7.47, target 9.75, unrealized points = + 0.85, unrealized P/L = + $425
UGA long (175 shares from March 4 entry) – bought 23.41, stop 24.88, target 31.30, unrealized points = + 1.94, unrealized P/L = + $340
UDN long (700 shares from March 25 entry) – bought 25.70, stop 24.84, target 27.45, unrealized points = (0.63), unrealized P/L = ($441)
Closed positions (since last report):
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SLV long (400 shares from March 5 entry) – bought 13.14, sold 11.71, points = (1.43), net P/L = ($580)
Current equity exposure ($100,000 max. buying power):
- $34,884
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader