Stocks concluded the week with a tug-of-war between the bulls and bears that left the major indices near the flat line. The broad market initially gapped sharply higher on the open, but traders quickly sold into strength, causing the main stock market indexes to fall into negative territory one hour later. Stocks recovered later in the morning, only to drift back down in the afternoon. In the end, the market was little changed for the day. The Dow Jones Industrial Average eked out a gain of 0.1%, the Nasdaq Composite was unchanged, and the S&P 500 slipped 0.3%. The small-cap Russell 2000 and S&P Midcap 400 indices lost 0.2% and 0.1% respectively. The major indices closed just below the middle of their intraday ranges.
Total volume in both the NYSE and Nasdaq eased 6%, as turnover in the NYSE remained below its average pace for the sixteenth straight session. After the opening sell-off, trading was initially tracking much higher than the previous day’s level, but turnover eased as the session progressed. Had volume remained at its rapid pace, last Friday’s session would have been indicative of bearish “churning,” which arises when institutions sell into strength near the highs.
Last week, we pointed out the bullish pattern in iPath Copper Trust (JJC), which was trading in a tight, sideways range, after breaking out of a symmetrical triangle pattern. A related ETF that appears to be showing even more relative strength is PowerShares Base Metals (DBB), whose portfolio is comprised of a mixture of aluminum, copper, and zinc. Its daily chart is shown below:
Since breaking out above its 200-day moving average on June 1, DBB has been consolidating near a pivotal level of horizontal price resistance. On June 4, DBB closed above its previous “swing high” from May 7, but drifted back below it the following day. Going into this week, we like DBB for long entry on a confirmed breakout above the June 4 high, over the $15.50 area. A protective stop can neatly be placed below the 200-day moving average.
Today, you may want to set a price alert for potential buy entry into iShares Silver Trust (SLV). Last Friday, precious metals corrected from their recent highs, causing SPDR Gold Trust (GLD) to lose 2.6% and SLV to fall 4.0%. Today, in pre-market trading, futures contracts on the shiny metals are also trading substantially lower. If the pre-market weakness persists into the open, SLV and GLD should open near support of their 20-day exponential moving averages (EMAs), thereby creating an ideal buy entry. But between the two ETFs, we still believe SLV is a better play than GLD due to its relative strength. On the daily charts below, notice how SLV will merely be pulling back to support of its February 2009 high, but GLD never even made it above its February 2009 high in the first place:
When/if SLV touches its 20-day EMA, it will be the first time it has done so since breaking out at the beginning of May 2009. As such, a pullback to that level represents a buy entry with a positive reward/risk ratio. Since we sold our SLV position last week, within a few cents of its high, a re-entry on the pullback will enable us to get back into SLV at a price 7 to 10% lower than where we sold into strength. On the next move up, we’re looking for SLV to break out above its long-term weekly downtrend line from the March 2008 high.
CurrencyShares Japanese Yen (FXY) sliced through key support of both its 50 and 200-day moving averages last Friday, causing the position to hit our stop. Due to a lack of bullish follow-through from the previous day’s strength, we also made a judgment call to scratch our position in the Bank SPDR (KBE). As such, we’re now flat.
In last Friday’s commentary, we said we’re in “pullback buying” mode, and listed several ETFs on our watchlist for potential entry on a correction. Since the main stock market indexes finished near the flat line on lighter volume last Friday, the session was primarily a non-event. Therefore, our plan remains the same going into today. ETFs we’re stalking for potential buy entry on pullbacks to their respective support levels include: iPath India (INP), iShares Xinhua China 25 (FXI), and iShares Silver Trust (SLV; as detailed above). If it triggers, PowerShares Base Metals (DBB) is, of course, a breakout entry.
iShares Silver Trust (SLV)
Shares = 500
Trigger = below 14.58 (pullback to the 20-day EMA)
Stop = 13.12 (below the 50-day MA and May 18 “swing low”)
Target = 19.12 (area of July 2008 high)
Dividend Date = n/a
Notes = See commentary above for explanation of the setup. Note that we’re giving a wide stop on our initial entry. However, when SLV settles down after pulling back, we may tighten the stop, to reduce our risk, and add additional shares when it starts heading back up. If SLV pulls back to near 14.58, but doesn’t exactly touch it, assume we are NOT buying unless we send an Intraday Alert indicating otherwise.
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):
- Per Intraday Trade Alert, we made a judgment call to sell KBE for a scratch (gain or loss of less than $100).
- FXY stopped out when it failed to hold major support of its 50 and 200-day moving averages.
- 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.
Closed positions (since last report):
KBE long (400 shares from June 4 entry) – bought 18.74, sold 18.60, points = (0.14), net P/L = ($64)
FXY long (250 shares from April 24 entry) – bought 102.41, sold 100.77, points = (1.64), net P/L = ($415)
Current equity exposure ($100,000 max. buying power):
Edited by Deron Wagner,
MTG Founder and