Stocks kicked off the holiday-shortened week with the bulls in control, sending the major indices sharply higher, but volume levels remained well below average. After opening lower, the main stock market indexes promptly reversed, trending steadily higher through mid-day. Thereafter, stocks consolidated in a sideways range throughout the afternoon. The Nasdaq Composite jumped 3.5%, the S&P 500 2.6%, and the Dow Jones Industrial Average 2.4%. The small and mid-cap sectors showed the most leadership; the Russell 2000 surged 4.8% higher and the S&P Midcap 400 advanced 3.8%. All the major indices closed near their intraday highs.
Total volume in the NYSE increased 32% above the previous day’s level, while volume in the Nasdaq similarly rose 30%. The sharp gains on higher volume technically caused both the S&P 500 and Nasdaq Composite to register a bullish “accumulation day.” However, it would be deceiving to say institutional accumulation was clearly prevalent. This is because the previous day’s, pre-holiday session was the lightest volume day in more than five months. Therefore, despite yesterday’s higher turnover, volume in both exchanges remained well below 50-day average levels. Trading was even lighter than during last Thursday’s broad-based sell-off. Overall, price action in the market was definitely positive, but unimpressive volume gave us cause for suspicion.
One sector that’s started showing relative strength to the broad market is healthcare. Typically, this sector is viewed as “defensive” in nature, so it often has a tendency to see positive money flow when the broad market is weakening. Yet, the healthcare arena is also showing strength when the major indices rally. This has created a few ETF setups we’re monitoring for potential buy entry. S&P Healthcare SPDR (XLV) is one such ETF we’re stalking. Its daily chart is shown below:
The iShares Nasdaq Biotech (IBB) has been choppier, but it too is nearing a potential breakout level that could generate substantial upside momentum in the short-term. Take a look:
On a completely different note, the PowerShares G10 Currency Harvest Fund (DBV) is showing an interesting chart pattern that has the potential for an explosive (relatively speaking) move to the upside. If you’re not familiar with this unique ETF, here’s a description of it, straight from the PowerShares.com web site: “The PowerShares DB G10 Currency Harvest Fund is based on the Deutsche Bank G10 Currency Future Harvest Index – Excess ReturnT (Index) and managed by DB Commodity Services LLC. The Index is comprised of currency futures contracts on certain G10 currencies and is designed to exploit the trend that currencies associated with relatively high interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates. The G10 currency universe from which the index selects currently includes U.S. Dollars, Euros, Japanese Yen, Canadian Dollars, Swiss Francs, British Pounds, Australian Dollars, New Zealand Dollars, Norwegian Krone and Swedish Krona. Ordinary brokerage commissions apply.” Below is the daily chart of DBV:
The price of DBV is now being squeezed between support of its ascending 50-day moving average (the teal line) and resistance of its descending 200-day moving average (the orange line). Though the 200-day MA normally welds more power than the 50-day MA, DBV has already tested that resistance level several times this month. Each subsequent test weakens that resistance level, until DBV eventually gathers enough momentum to breakout above the 200-day MA. Given that DBV has been consolidating in a tight range for the past several months, odds favor an upside breakout above the 200-day MA, more than a breakdown below the 50-day MA. For price confirmation, we like it for long entry on a rally above the May 19 high of $21.17. If trading DBV, a stop of just one point should be sufficient, as it has a low volatility. As such, be sure to adjust your share size high enough to account for a stop that is tighter than most other setups.
Despite yesterday’s large gains, the technical picture of the main stock market indexes has not changed. The S&P, Nasdaq, and Dow all remain trapped in the middle of their multi-week trading ranges, which we illustrated with the chart of the S&P 500 in yesterday’s commentary. Until we see a definitive breakout of the recent ranges, in either direction, we cannot place much faith in the day-to-day market gyrations. Keeping a healthy portion of cash in your portfolio is a great way to prevent churning your account until the market eventually makes up its mind.
S&P Healthcare SPDR (XLV)
Shares = 400
Trigger = 25.88 (above the May 13 high)
Stop = 24.69 (below the low of the consolidation)
Target = 28.30 (probe above the Feb. 2009 highs)
Dividend Date = approx. June 20
Notes = See commentary above for explanation of the setup. Note that XLV is also a potential buy entry for the ETF Portfolio Tracker service as well. However, a tighter stop is used on this setup because The Wagner Daily plays are intended to be of a shorter-term nature.
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.
Open positions (coming into today):
- No changes to open positions at this time.
- 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.
SLV long (900 shares total – 700 from May 4, 200 from May 19 entry) –
bought 13.01 (avg.), stop 13.06, target 15.12, unrealized points = + 1.41, unrealized P/L = + $1,269
FXY long (250 shares from April 24 entry) – bought 102.41, stop 100.80, target 112.20, unrealized points = + 2.35, unrealized P/L = + $588
SKF long (150 shares from May 20 entry) – bought 43.90, stop 41.40, no target (will trail stop), unrealized points = (1.08), unrealized P/L = ($162)
Closed positions (since last report):
Current equity exposure ($100,000 max. buying power):
Edited by Deron Wagner,
MTG Founder and