Commentary:
The main stock market indexes followed up Monday’s strong session with a modest, broad-based pullback, but an extremely narrow trading range showed a lack of decisiveness in either direction. Stocks drifted lower in the morning, moved in a tight, sideways range throughout most of the day, then ticked higher to minimize their losses into the close. The S&P 500, which finished 0.4% lower, traded in an intraday range of just ten points — its tightest session so far this year. The Dow Jones Industrial Average eased 0.2% and the Nasdaq Composite declined 0.5%. Both the small-cap Russell 2000 and S&P Midcap 400 indices fell 0.8%. The major indices settled between the middle to upper quarter of their intraday ranges.
Total volume in the NYSE declined 6%, while Nasdaq volume was on par with the previous day’s level. The lighter turnover enabled the S&P and Nasdaq to avert a bearish “distribution day.” However, it’s notable that volume was tracking susbstantially higher throughout most of the day, especially during the morning decline. Turnover only eased during the rally off the lows that occurred during the final hour of trading. As such, it would be deceiving to say there were no signs of institutional selling yesterday. In both the NYSE and Nasdaq, advancing volume very marginally exceeded declining volume.
In yesterday morning’s commentary, we looked at several ETFs we’re stalking for possible buy entry on a pullback. Specifically, we pointed out the solar energy and several emerging markets ETFs as strong pullback buy candidates. Joining our watchlist of ETFs is Market Vectors Coal (KOL), which recently broke out on strong volume. Take a look:
As we always view volume spikes as signs of institutional buying interest, one thing that initially attracted our attention to KOL was the recent buying interest, denoted by the volume surge in recent days. When KOL broke out on May 1, it did so on nearly double its average daily volume. The following day, trading in KOL jumped to more than four times its average daily volume, clearly pointing to accumulation by mutual funds, hedge funds, and other institutions. As it should on a pullback, volume retreated slightly yesterday, but KOL still remained quite active. Over the next few days, we ideally would like to see KOL gently retrace on declining volume, forming a “bull flag” type chart pattern. If it does, we’ll be looking to buy the first subsequent rally above the upper channel of the hourly downtrend line that develops, especially if volume returns on the next breakout.
Yesterday’s lack of broad-based direction was likely attributed to nervousness ahead of Thursday’s public release of the results of the financial “stress tests” conducted by the government last week. Tomorrow, we will learn of the current liquidity status of nineteen of the largest U.S. banks, and whether or not they will require more TARP “rescue” funds from the Fed. Obviously, the reaction to those results will have a large impact on the direction of the financial sector, as well as the entire broad market. We continue to look for buy entries in strongly trending ETFs that pull back to support, but we’re not in a hurry to enter new positions ahead of tomorrow’s eagerly anticipated news.
Today’s Watchlist:
There are a handful of ETFs we’re monitoring for potential buy entry on pullbacks to support. The list includes ETFs such as: TAN, INP, FXI, KOL, and DBA. If we spot ideal entry points in any of these ETFs today, we’ll send an Intraday Trade Alert with details. Otherwise, we’ll continue stalking them. As mentioned in the commentary above, it may be a good idea to avoid new trade entries ahead of tomorrow’s results on the recent financial “stress tests.”
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 our open positions.
- SKF and QID hit their stops.
- 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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SLV long (700 shares from May 4 entry) – bought 12.72, stop 11.88, target 15.12, unrealized points = + 0.42, unrealized P/L = + $294
FXY long (250 shares from April 24 entry) – bought 102.41, stop 99.48, target 112.20, unrealized points = (1.81), unrealized P/L = ($453)
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $34,348
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader