Commentary:
Stocks finished the week with another choppy, non-committal session of trading last Friday, before finishing the day near the flat line and with mixed results. The major indices gapped lower on the open, stabilized, then grinded higher throughout the rest of the session. The Dow Jones Industrial Average closed 0.3% higher and the S&P 500 eked out a gain of 0.1%. The Nasdaq Composite settled with a 0.2% loss; earlier in the day, the tech-heavy index was off as much as 1.6%. The small-cap Russell 2000 advanced 0.2%, as the S&P Midcap 400 fell 0.3%. All the main stock market indexes closed near their intraday highs, but remained within the confines of their recent, sideways trading ranges.
Turnover fell sharply across the board, as institutional market participants watched from the sidelines. Total volume in the NYSE decreased 30% below the previous day’s level, while volume in the Nasdaq receded 17% Last Friday’s lethargic pace in the NYSE marked the lightest day of trading so far this year. Further, it has now been a full month since trading in the NYSE even exceeded its 50-day average level. Turnover in the Nasdaq has been slightly more active, but not overly so. We expect volume to remain below light until the broad market makes a definitive break, in either direction, away from its multi-week band of sideways consolidation.
Select international ETFs continue to outperform the domestic markets, particularly those correlated to emerging markets. The iPath India Index (INP), which we’ve discussed several times over the past few weeks, is one such ETF on our radar screen as we enter the new week. Specifically, we’re looking for a potential buy entry on a pullback to support of its 20-day exponential moving average (EMA). The setup is illustrated on the daily chart below:
Since beginning the uptrend off its March 2009 lows, notice how the 20-day EMA (the beige line) has nicely acted as support for INP. On May 18, INP really began to pick up momentum, as a positive result to election news sparked a large upside gap that day. Now, we’re waiting for the first touch of the 20-day EMA since the May 18 gap. An area of horizontal price support is also found at the $49 area, which roughly correlates to the 20-day EMA. If buying INP on a pullback to support, consider a protective stop below support of the multi-month uptrend line (the dashed purple line), which also correlates to a break below the low of the May gap.
While INP is a potential pullback entry, we’re stalking iShares Mexico Index (EWW) for potential breakout entry. Take a look at the daily chart of EWW below:
Over the past month, EWW has been trading in a tight, sideways range, forming resistance at the $38 area. This narrow band of consolidation is known as a “correction by time,” and has enabled the 20-day EMA to rise up to provide support to the price of EWW. With this setup, the entry is rather obviously above the $38 level (plus some “wiggle room” to prevent a false trigger). Because it’s a breakout entry, rather than a pullback entry, we would keep a tight stop on this play. Quite simply, EWW should not cross back below the breakout level by more than a few cents after it breaks out. If it does, we would probably be looking at a false breakout, a pattern that causes momentum to sharply and swiftly reverse.
Though the major indices remain within the confines of a choppy, sideways consolidation, stocks registered a bearish “distribution day” last Wednesday, followed by an ugly session of “churning” on Thursday. Also on Thursday, the main stock market indexes probed above the highs of their recent trading ranges on an intraday basis, but reversed to close near their intraday lows. As such, prudent traders will be on guard for the real possibility of a substantial pullback in the market this week. Nevertheless, there is significant price support below current levels, as well as the 20 and 50-day moving averages. Rather than attempting to trade the broad-based ETFs such as QQQQ or SPY, a better plan of action may be to focus on ETFs exhibiting relative strength or weakness to the major indices.
Today’s Watchlist:
iPath India Index (INP)
Long
Shares = 150
Trigger = 49.32 (pullback to area of 20-day EMA)
Stop = 44.70 (below the daily uptrend line)
Target = 64.20 (resistance of Aug. 2008 highs)
Dividend Date = n/a
Notes = See commentary above for explanation of this pullback setup.
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):
- No changes to our 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.
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IBB long (200 shares from June 8 entry) – bought 70.04, stop 67.12, target 76.48, unrealized points = + 0.36, unrealized P/L = + $72
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 = (0.11), unrealized P/L = ($77)
UNG long (400 shares from June 11 entry) – bought 15.12, stop 13.59, target 19.80, unrealized points = (0.45), unrealized P/L = ($180)
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 = (0.70), unrealized P/L = ($490)
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $42,894
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader