The Wagner Daily | June 2, 2009

Commentary:

Building on the bullish momentum from Friday’s last-minute buying spree, stocks jumped higher out of the starting gate yesterday morning, consolidated in a very tight, sideways range throughout the entire session, then settled near their intraday highs. The Nasdaq Composite zoomed 3.1% higher, while the S&P 500 and Dow Jones Industrial Average posted matching gains of 2.6%. The small-cap Russell 2000 and S&P Midcap 400 indices climbed 4.0% and 3.6% respectively. This time, leading individual stocks generally kept pace with the broad market, a bullish indication of money flow into more aggressive growth companies.

The only negative to yesterday’s session is that turnover was mixed. Total volume in the Nasdaq increased 2% above the previous day’s level, enabling the index to register a bullish “accumulation day.” Trading in the NYSE, however, was 15% lighter. NYSE volume also remained below its 50-day average level for the twelfth straight day. Considering yesterday’s surge enabled the S&P 500 to break out above its multi-week consolidation, as well as its 200-day moving average, one might have expected a more powerful indication of institutional buying. Yet, that wasn’t the case.

Yesterday, we finally sold our position in iShares Silver Trust (SLV), enabling us to lock in a handsome average gain of 19% on the full position. Though SLV held up okay yesterday, we made the decision to take profits after SLV opened above the previous day’s high, but drifted into negative territory an hour later. In the previous session, SLV had already achieved our initial profit target of $15.12, so it made sense to begin keeping a very tight trailing stop at that point. More importantly, our profit target was based on resistance of a long-term, weekly downtrend line that has the potential to trigger a substantial pullback on the first test of resistance. Our entry, exit, and profit target of the SLV setup is shown on the weekly chart below:

Though we’ve closed the SLV position into strength, its daily chart still looks good. As such, we will monitor the subsequent price action of silver (as well as gold) for possible re-entry into the precious metals sector, either on a breakout above the weekly downtrend line, or on the next pullback to support.

The Oil Service HOLDR (OIH), which we bought on May 28, broke out with a 4.8% gain yesterday. The rally enabled OIH to convincingly move above resistance of its prior high (from May 7), which should now act as support on any pullback. The breakout is shown on the daily chart below:

Unlike our position in OIH, the KBW Bank SPDR (KBE) again lagged the broad market by exhibiting relative weakness. At yesterday’s intraday high, KBE was showing a 1.5% gain, but the major indices were trading higher by nearly double that amount. Then, KBE began drifting lower as the main stock market indexes merely oscillated in a narrow, sideways range. The clear display of relative weakness told us KBE would likely fall very rapidly if the broad market pulled back yesterday afternoon. As such, we sent an Intraday Alert to subscribers, informing them we were raising the stop in KBE, to eliminate our risk from the trade. Although a pullback in the broad market never came, KBE was so weak that it sold off in the afternoon regardless, thereby hitting our trailing stop of $18.63. Nevertheless, we still locked in a small gain on the trade, but the banking index simply has not shown any bullish momentum since bouncing off support of its 20-day exponential moving average. The relative weakness of KBE is shown on the intraday “percentage change chart” below:

Yesterday’s broad-based rally enabled the Nasdaq Composite to climb further above its 200-day moving average, while the S&P 500 closed above its 200-day moving average for the first time in more than 15 months (since December 26, 2007 to be exact). If the index remains above that key indicator of long-term sentiment, it definitely will be positive for the intermediate and long-term trends of the broad market. However, a one-day close above a pivotal moving average is not enough to definitively declare a breakout above resistance. In fact, it is actually quite common for an index, ETF, or stock to close above a closely-watched level of resistance for a day or two, triggering a plethora of buy stops, before drifting right back down. Because yesterday’s breakout occurred on lighter than average volume that was less than the previous day’s level, astute traders must be cautious here. Still, as long as the broad market’s price action continues to prove itself, buying opportunities in select sectors will continue to present themselves.

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.

Open positions (coming into today):

unrealized P/L = + $509

FXY long (250 shares from April 24 entry) – bought 102.41, stop 100.80, target 112.20, unrealized points = + 0.57, unrealized P/L = + $143

Closed positions (since last report):

net P/L = + $2,187

KBE long (400 shares from May 28 entry) – bought 18.21, sold 18.62, points = + 0.41, net P/L = + $156

Current equity exposure ($100,000 max. buying power):

$36,905

Notes:

Per Intraday Trade Alert, we sold SLV into strength yesterday, netting a gain of 19% ($2,200) on the trade.
In yesterday’s Wagner Daily, we inadvertently listed our original stop prices in both KBE and OIH, rather than the new stop prices as per the Intraday Trade Alert of May 29. Since we sold KBE yesterday (per Intraday Alert), the new stop price of $104.70 is only listed for OIH.
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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Edited by Deron Wagner,
MTG Founder and
Head Trader