Commentary:
Stocks chopped around in indecisive fashion yesterday, but eventually closed higher across the board. Showing considerable relative weakness for a change, the Nasdaq Composite was down 1.4% at its intraday low, but the index recovered to finish 0.3% higher. The S&P 500 and Dow Jones Industrial Average performed much better yesterday, as neither index dipped into negative territory the entire session. The S&P 500 climbed 1.7% and the Dow Jones Industrial Average gained 1.2%. The small-cap Russell 2000 and S&P Midcap 400 indices advanced 0.5% and 0.9% respectively. The S&P and Dow closed near their best levels of the day, while the Nasdaq settled only in the upper third of its intraday range.
Total volume in the NYSE grew 22%, as volume in the Nasdaq increased 19% above the previous day’s level. The higher turnover in both exchanges caused the S&P 500 and Nasdaq Composite to score a bullish “accumulation day,” but the presence of institutional buying was more convincing in the NYSE than the Nasdaq. In both the NYSE and Nasdaq, trading jumped to well above 50-day average levels. The Nasdaq had its most active day in more than five months, though the clear relative weakness in the tech-heavy index was a little concerning.
In the May 5 issue of The Wagner Daily, we pointed out the upside breakout in iPath India Index (INP), along with other emerging markets ETFs. Since then, INP has consolidate in a tight range, contained within the intraday range of its May 4 breakout. This has led to the approximate formation of a “bull flag” pattern, just above new support of its 200-day MA. Because of this, we’re now stalking INP for potential buy entry above yesterday’s high of $39.67. Such a rally above the upper channel of the “bull flag” should lead to a resumption of the uptrend from the recent breakout. If the setup triggers, our protective stop will be below the 20 and 200-day moving averages. The setup is shown below:
Zooming approximately 8% higher yesterday, the U.S. Natural Gas Fund (UNG) broke out above resistance of a four-month downtrend line. Confirming the breakout was a volume spike to more than double its average daily volume. For those who like to trade the momentum of short-term trend reversals, UNG now offers a pretty solid risk/reward ratio. Moreover, there is also no risk of blindly trying to catch a bottom without first having bullish price and volume confirmation. The daily chart of UNG is shown below:
On the chart above, check out the volume pattern of the past five days. During that period, there have been four “up” days and one “down” day. All four of the “up” days have been on increasing volume (“accumulation”), while the sole down day was on lighter volume. This, of course, is the type of volume action we want to see when buying an ETF that is reversing its downtrend. However, it’s important to realize this is ideally suited to being a short-term trade to take quick profits, as there remains a lot of overhead supply. Although the 50-day MA is still overhead, we bought UNG after it gapped up yesterday morning. The break of the downtrend line, combined with the bullish volume pattern, gave us sufficient technical reason for buy entry, despite the 50-day MA. Even if UNG quickly stalls after running into its 50-day MA, our entry price is low enough that we can still close the trade for a small profit or scratch.
The 200-day moving average of the Nasdaq Composite, which we’ve discussed several times over the past two weeks, remains a very possible point of contention for the broad market. Though the index has managed to close above that level in each of the past three days, we’re not out of the woods yet. On the daily chart below, notice how the 200-day MA is acting like a magnet, putting pressure on further gains in the Nasdaq. If the index falls to close below its low of the past three days (below 1,729), it could trigger a wave of sell orders on fears of the 200-day MA. As such, consider keeping tight trailing stops on any Nasdaq-related positions you may be carrying. Conversely, a firm breakout above yesterday’s high of 1,770, well above the 200-day MA, would be equally bullish:
Today, we “officially” will hear the results of the recent “stress tests” the Fed applied to nineteen of the largest U.S. banks. A bit of leaked news initially led to a positive reaction in the banking sector yesterday, but it’s still prudent to be prepared for any shocks to the system.
Today’s Watchlist:
iPath India Index (INP)
Long
Shares = 150
Trigger = $39.87 (above yesterday’s high)
Stop = $36.22 (below the 20 and 200-day MAs)
Target = no target (will trail stop)
Dividend Date = n/a
Notes = See commentary above for explanation of the setup.
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):
- Per Intraday Trade Alert, we bought UNG yesterday.
- 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 = + 0.80, unrealized P/L = + $560
UNG long (400 shares from May 6 entry) – bought 14.84, stop 13.22, target 19.80, unrealized points = + 0.33, unrealized P/L = + $132
FXY long (250 shares from April 24 entry) – bought 102.41, stop 99.48, target 112.20, unrealized points = (1.14), unrealized P/L = ($285)
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $40,849
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader