Yesterday was a tale of two markets, as the bulls ran the show in the morning, but the bears took control in the afternoon. In the end, the main stock market indexes still finished modestly higher, but in the bottom quarter of their intraday ranges. The S&P 500 gained 0.6%, the Nasdaq Composite 0.5%, and the Dow Jones Industrial Average 0.4%. The small-cap Russell 2000 advanced 0.4%, as the S&P Midcap 400 closed 0.6% higher. At their mid-day peaks, all the major indices briefly probed above the highs of their consolidation patterns, but fell to close back within their recent trading ranges.
Total volume in the NYSE was on par with the previous day’s level, while volume in the Nasdaq increased 5%. Although the Nasdaq technically registered an “accumulation day” by gaining on higher volume, it would be deceiving to say the session was dominated by institutional buying. On the contrary, the intraday price action was more indicative of bearish “churning,” which occurs when mutual funds, hedge funds, and other big players stealthily sell into strength near the market’s highs. It is typically negative when stocks sell off from substantial intraday gains to close only slightly higher, and near their lows of the day. When higher turnover accompanies such price action, it’s a sign of “churning,” a warning sign of institutional selling into strength that astute traders don’t ignore.
In yesterday’s commentary, we looked at the bullish setups in the oil sector, and suggested several ETFs in the sector were poised for breakout on any further strength in the broad market. As anticipated, the oil ETFs indeed broke out above their recent trading ranges yesterday and retained most of those gains into the close. Though we did not buy any of the oil ETFs that broke out, we entered a new position in the natural gas sector, which actually outperformed oil yesterday.
Of all the major industry sectors we monitor on a daily basis, the Natural Gas Index ($XNG) scored the largest gain yesterday (3.4%). This was followed by the Oil Service Index ($OSX), which climbed 2.7%. The strength in the natural gas sector caused U.S. Natural Gas Fund (UNG), which is tied to the price of the natural gas futures contracts, to jump more than 5%. We bought UNG when it broke out above its 20 and 50-day moving averages, as well as a short-term base of consolidation. Notably, volume spiked to nearly 400% its average daily level, hinting at institutional accumulation on the rally. UNG is now poised to break out above its month-long downtrend line within the next day or two. Our entry is shown on the chart below:
At yesterday’s intraday highs, the S&P 500, Dow, and Nasdaq all traded above the highs of their recent consolidation patterns, but were unable to hold their breakouts. Subsequently finishing near their lows of the day, all three indices formed bearish “inverted hammer” candlestick patterns into the close. Below are charts of the S&P 500 SPDR (SPY), Dow Jones DIAMONDS (DIA), and Nasdaq 100 Tracking Stock (QQQQ), popular ETF proxies of each index:
Although all three ETFs have simply fallen back into their previous trading ranges, we view yesterday’s intraday action as bearish for three reasons: the breakouts were unable to hold, the ETFs closed near their intraday lows, and the Nasdaq saw increasing volume. Obviously, this doesn’t give us a license to start aggressively entering new short positions at current levels, but the selling into strength should serve as a warning that a substantial market correction may be coming soon. Considering the massive gains the indexes have realized since their March 2009 lows, pullbacks to the 50-day moving averages (the teal colored lines, roughly converging with the May 2009 lows) would not be surprising. Since our current positions include two ETFs with low correlation to the direction of the broad market (SLV and UNG), one long ETF with emerging relative strength (IBB), and one short ETF in a sector with developing relative weakness (SRS), we should be positioned for net profits, regardless of which way the broad market goes from here.
There are no new setups in the pre-market today. As always, we’ll promptly send an Intraday Trade Alert if/when 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):
- Yesterday was rather busy. Per several Intraday Trade Alerts, we added to both SLV and SRS, and entered new positions in UNG and MOO. Due to market churning, and because MOO is rather correlated to the broad market, we made a judgment call to sell MOO for a scratch (breakeven trade) late in the afternoon.
- 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.
SRS long (700 shares total — 500 shares on June 10, 200 shares on June 11) –
bought 18.85 (avg.), split stop – HALF at 17.90, HALF at 17.39, target 22.70, unrealized points = + 0.40, unrealized P/L = + $280
SLV long (700 shares total — 500 shares on June 8, 200 shares on June 11) –
bought 14.74 (avg.), stop 13.29, target 19.12, unrealized points = + 0.39, unrealized P/L = + $273
IBB long (200 shares from June 8 entry) – bought 70.04, stop 67.12, target 76.48, unrealized points = + 0.04, unrealized P/L = + $8
UNG long (400 shares from June 11 entry) – bought 15.12, stop 13.59, target 19.80, unrealized points = (0.32), unrealized P/L = ($128)
Closed positions (since last report):
MOO long (250 shares from June 11 entry) – bought 38.40, sold 38.42, points = + 0.02, unrealized P/L = + $0
Current equity exposure ($100,000 max. buying power):
Edited by Deron Wagner,
MTG Founder and