Commentary:
The major indices closed the week with a bounce back from the previous day’s losses, but the Nasdaq continued to show clear relative weakness. After gapping higher on the open, stocks sold off for the first hour of trading, but the bulls returned at mid-day, lifting the main stock market indexes to substantial gains by the close. The S&P 500 gained 2.4%, the Dow Jones Industrial Average 2.0%, and the Nasdaq Composite 1.3%. After falling 2.4% on Thursday, the Nasdaq Composite’s brother, the large-cap Nasdaq 100, showed bearish divergence by edging just 0.3% higher. Small and mid-cap stocks, however, perked up. The Russell 2000 and S&P Midcap 400 indices jumped 3.8% and 3.4% respectively. The S&P 500 and Dow Jones Industrials closed at their best levels of the day and week. The Nasdaq Composite closed near the middle of its intra-week range, but still managed to log its ninth consecutive weekly gain.
Lower turnover was the one negative of Friday’s rally. In the NYSE, total volume was 5% lighter than the previous day’s level. Total volume in the Nasdaq eased 2%. In the previous session, all the main stock market indexes sold off on higher volume, registering “distribution days” in both the S&P 500 and Nasdaq. As such, it would have been much better if higher volume accompanied Friday’s recovery, but that wasn’t the case. Nevertheless, advancing volume in the NYSE exceeded declining volume by more than 7 to 1. Nasdaq internals, not surprisingly, were less positive. Advancing volume beat declining volume by less than 2 to 1.
Although stocks scored another round of gains last week, substantial price divergence within the broad market was observed, particularly in the latter half of the week. Last Wednesday, the Nasdaq Composite exhibited signs of “churning,” as volume surged to its highest level in five months, but price was little changed. The following day, turnover spiked even higher, and the Nasdaq fell more than 2%. Conversely, a positive reaction to last week’s results of the financial “stress tests” led to a positive reaction in the financial sector and ETFs, helping the S&P 500 and Dow Jones Industrial Average to outperform the Nasdaq. However, because sustainably strong markets need to be driven by leading sectors and stocks, not dead industries merely bouncing off their lows, we do NOT view it as positive that financials have been one of the best-performing sectors in the current stock market rally.
As we enter the new week, the Nasdaq is sitting just below its 200-day moving average; it has closed below it in each of the past two sessions. Despite efforts by the S&P and Dow to ignore the recent relative weakness in the Nasdaq, we believe further weakness in the Nasdaq this week would have a very high chance of weighing down the rest of the main stock market indexes as well. But a decent pullback in the market would actually be most welcome at this point, as it would provide us with the opportunity to enter the strongest ETFs on retracements to new support levels.
Last week, we pointed out the strength in the Emerging Markets and Solar Energy ETFs, and we continue to look for pullback entries in these sectors. Another ETF with relative strength to the broad market is First Trust Global Wind Energy (FAN). Its daily chart is shown below:
The S&P 500 and Dow Jones Industrial Average are still below their January 2009 highs. FAN, however, already broke out above its January 2009 highs last week, and is now testing its 200-day moving average. If this first touch of the 200-day MA leads to a pullback, we’d initially look to buy FAN near support of the 20-day exponential moving average. If a retracement turns out to be steeper than the 20-day EMA, the 50-day moving average, presently at the $11.14 area, would provide a secondary buy entry.
U.S. Natural Gas Fund (UNG), a short-term trend reversal play we’re positioned in, cruised more than 4% higher last Friday. It has also closed higher in six of the past seven days. Volume has been more than 300% its average daily level in each of the past two days, indicating real accumulation on behalf of mutual funds, hedge funds, and other institutions. In addition to UNG, a handful of other commodity ETFs turned in strong performances as well. The crude oil ETFs all broke out above prior resistance of their March 2009 highs. SPDR Gold Trust (GLD) moved back above its 50-day MA. The iShares Silver Trust (SLV), another of our open positions, is fast-approaching this year’s high. If the U.S. dollar continues to soften, commodity ETFs could become the next leaders in the intermediate-term.
Today’s Watchlist:
There are no new setups in the pre-market today. As always, we’ll promptly send an Intraday Trade Alert if we enter anything new.
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):
- Now that they’re starting to break out, we’ve trailed the stops slightly higher in SLV and UNG. We will continue to trail them higher as they consolidate.
- 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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UNG long (400 shares from May 6 entry) – bought 14.84, stop 14.22, target 19.80, unrealized points = + 2.09, unrealized P/L = + $836
SLV long (700 shares from May 4 entry) – bought 12.72, stop 12.22, target 15.12, unrealized points = + 1.07, unrealized P/L = + $749
FXY long (250 shares from April 24 entry) – bought 102.41, stop 99.48, target 112.20, unrealized points = (1.35), unrealized P/L = ($338)
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $41,690
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader