Commentary:
Shaking off the previous day’s correction, the major indices snapped back to recover most of Wednesday’s losses. The broad market opened slightly higher, drifted lower in the early going, then reversed to grind higher throughout the rest of the day. The Nasdaq Composite gained 1.3%, the S&P 500 1.2%, and the Dow Jones Industrial Average 0.9%. Small and mid-caps outperformed, as the Russell 2000 and S&P Midcap 400 indices climbed 1.7% and 2.0% respectively. Stocks marked a strong finish with all the main stock market indexes closing at their intraday highs.
The most positive thing about yesterday’s session is the gains were accompanied by higher volume in both exchanges. Total volume in the NYSE increased 2%, while volume in the Nasdaq rose 5% above the previous day’s level. Turnover in the Nasdaq also moved back above 50-day average levels. The broad-based gains on higher volume enabled both the S&P 500 and Nasdaq Composite to score an “accumulation day,” a signal of buying amongst mutual funds, hedge funds, and other institutions. Market internals were also solid. In the NYSE, advancing volume exceeded declining volume by a ratio of more than 3 to 1. The Nasdaq adv/dec volume ratio was positive by 4 to 1.
As commodities have heated up, we’ve primarily focused on gold, silver, and energy-related ETFs. But one of the more bullish commodity ETFs is a lesser-known ETF that tracks the price of copper, iPath Copper Trust (JJC). Its daily chart is shown below:
On June 3, JJC pulled back to successfully test support of its breakout level, around the $30.70 level. The pullback to support caught our interest, and put us on alert for a potential buy entry on a gap down the following day. However, it gapped up instead, then quickly rallied back to close near the upper end of its short-term consolidation. Although a buy entry on the pullback provided the best reward-risk ratio, yesterday’s higher open made a morning trade entry riskier than buying a gap down. Still, a secondary buy point is a breakout above the high of the four-day consolidation, over the $32.50 area.
In yesterday’s commentary, we discussed the volatility contraction in the Bank Index ($BKX), and suggested the index would soon make a decisive move in one direction or the other. All throughout yesterday’s session, the $BKX showed relative strength to the major indices, then closed with a 4.8% gain, an outperformance to the S&P 500 of more than 3%. Of all the industry sectors we follow, the $BKX also registered the largest percentage gain. Furthermore, the KBW Bank SPDR (KBE), which tracks the Bank Index ($BKX), showed signs of institutional accumulation with a volume spike to 150% of its average daily volume. This prompted us to re-enter KBE at nearly the same price we closed it for a small profit a few days ago. The volume spike is shown on the daily chart of KBE below:
We continue to be in “pullback buying” mode, waiting patiently for ETFs with the most relative strength to give us ideal, low-risk buying entries. Here are two we’re stalking:
Due to resistance of its long-term downtrend line on the weekly chart, we just closed our SLV position for a 19% gain a few days ago. Nevertheless, it continues to act very well, and we’re looking for a re-entry point on a pullback. As the chart above illustrates, a pullback to support of the February high and 20-day exponential moving average, around the $14.50 area, would likely prompt us to re-enter the position. If SLV corrects by time instead, consolidating in a sideways range, we would alternatively consider buying a breakout above the range.
We pointed out the INP chart in the June 3 issue of The Wagner Daily, but wanted to make sure you keep this one on your radar because it is arguably one of the strongest ETFs in the market right now:
Yesterday, the Dow joined the S&P and Nasdaq at reclaiming its 200-day moving average. This means all the main stock market indexes we follow are now trading above their 200-day MAs, an indicator of long-term trend. It’s also encouraging that the S&P 500 perfectly bounced off support of its 200-day MA after Wednesday’s pullback. Still, it’s prudent to keep an ounce or two of caution in the back of your mind because the major indices are technically still in long-term downtrends. But as long as stocks remain in short and intermediate-term uptrends, we’ll continue to take advantage of select buying opportunities with firm stops in place.
Today’s Watchlist:
With the major indices having recently broken out above their bases of consolidation, we are in buying mode, primarily focused on buying pullbacks to support. Though there are no new setups in the pre-market today, 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):
- Per Intraday Trade Alert, we bought KBE yesterday. Based on yesterday’s higher than average volume, it’s looking as though KBE may be breaking out of its volatility contraction. Our target is a probe above resistance of its May 2009 high.
- 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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FXY long (250 shares from April 24 entry) – bought 102.41, stop 100.80, target 112.20, unrealized points = + 0.40, unrealized P/L = + $100
KBE long (400 shares from June 4 entry) – bought 18.74, stop 17.29, target 22.17, unrealized points = + 0.06, unrealized P/L = + $24
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $33,223
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader