Commentary:
Like the previous day, stocks meandered through another choppy, range-bound session of trading yesterday, but morning strength still enabled most of the major indices to close in positive territory yesterday. The major indices sold off on the open, reversed to move higher in the morning, then oscillated in a sideways to lower range throughout the rest of the day. By the closing bell, all the main stock market indexes except the Russell 2000 finished in the black. The Dow Jones Industrial Average advanced 1.1%, the S&P 500 0.9%, and the Nasdaq Composite 0.3%. Gaining 0.7%, the S&P Midcap 400 kept pace with the rest of the market, but the small-cap Russell 2000 slipped 0.4%. Showing relative strength, the S&P 500 and Dow Jones Industrials finished near their best levels of the day. The rest of the major indices closed in the upper third of their intraday ranges.
Total volume in the NYSE decreased 48% below the previous day’s level, while trading in the Nasdaq similarly eased 42%. Although last Friday’s volume levels were artificially inflated by the rebalancing of the Russell indexes, turnover across the board was still much lighter than average. In both exchanges, volume slowed to its lowest level of the past few weeks. Since the stock market is closed for a holiday this Friday, traders will probably start closing up shop on Thursday. This means trading could very easily remain below average levels until at least next week. Because light volume markets are notorious for being choppy and indecisive, an extra ounce of caution is suggested until after the holiday weekend has passed.
We continue to be focused on the newfound resilience and relative strength of the healthcare sector. Yesterday, iShares Nasdaq Biotech (IBB), which we’re presently long, sold off to a 1.7% loss in the morning, alongside of broad market weakness, but reversed to close slightly higher. Even better was the performance of the Pharmaceutical HOLDR (PPH), which broke out above a key area of horizontal price resistance. Below is an updated daily chart of PPH, which we first analyzed in our June 26 commentary:
CurrencyShares British Pound Sterling (FXB), which tracks the price of the British Pound to the U.S. dollar, was in a protracted downtrend that began in late 2007, and technically ended at the beginning of last month. Over the past month, FXB has been consolidating in a tight, sideways range, holding firmly above support of its 20-day exponential moving average (EMA). In the coming days, we’re stalking FXB for a potential breakout above the high of the range. The bullish setup is shown on the daily chart below:
On June 17, we bought PowerShares Agriculture Fund (DBA), when it pulled back and bounced off major support of its 50 and 200-day moving averages. Three days later, DBA gapped down below its 50 and 200-day MAs, nearly triggering our stop, but it snapped back into the previous range the following day. Since then, it hasn’t done much, but DBA is still holding its 200-day MA, and has the potential to catch some strong bullish momentum if it reclaims its 50-day MA, which has converged with its 20-day EMA. Such a move would also correlate to a breakout above its four-week downtrend line. With a tightened stop just below the 200-day MA, an entry near the current price carries a very positive reward/risk ratio. Take a look:
As for the short side of the market, there are a few inversely correlated “short” ETFs that are looking good for potential buy entry. One such ETF is UltraShort 20+ year T-Bonds (TBT). Last month, TBT broke out above a lengthy period of sideways consolidation and rallied sharply. However, it has since pulled back to support of that breakout level, at its February 2009 high, which converges with key support of its 200-day MA. We like TBT for buy entry above yesterday’s high, over the $51 area:
We also like the “bull flag” pattern forming on the daily chart of UltraShort Oil and Gas (DUG). After breaking out to reverse its downtrend earlier this month, DUG ran into resistance of its 50-day MA, then pulled back to support of its 20-day EMA yesterday. Now, if it rallies above yesterday’s high, it will reclaim its 50-day MA, triggering a legitimate buy entry as well. The Energy Bear 3X Shares (ERY) has a very similar chart pattern as well. The daily chart of DUG is shown below:
Yesterday, our position in UltraShort Financials ProShares (SKF) hit its stop, but the ETF is roughly forming the right shoulder of a bullish inverse head and shoulders pattern. As such, we’ll be keeping an eye on SKF today, just in case our stop was a few cents too tight, and our entry a bit too early. We have no problem re-entering the position if our original expectation proves to be correct. A rally above yesterday’s high would break its short-term downtrend line, and would give us sufficient technical reason to jump back into the trade. The UltraShort Real Estate ProShares (SRS) is showing slightly more relative strength than SKF, and also looks good for potential re-entry above yesterday’s high. Last week, we sold SRS into strength, netting a large profit, but the current pullback may provide us with an ideal re-entry point if resumption of the short-term uptrend is confirmed.
Today’s Watchlist:
UltraShort Oil and Gas (DUG)
Long
Shares = 300
Trigger = 19.03 (above the 50-day MA and yesterday’s high)
Stop = 17.12 (below the low of the breakout range)
Target = 22.83 (resistance of the 38.2% Fibonacci retracement from the March high to June low)
Dividend Date = n/a
Notes = See commentary above for explanation of the setup.
In addition to DUG, we’re also monitoring both FXB and TBT for potential buy entry, as explained above. If either of those positions are entered instead of, or in addition to, DUG, we’ll promptly send an Intraday Trade Alert with details.
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):
- Both SKF and SLV hit their stops yesterday. The performance in SLV has been disappointing, as the bounce off the 50-day MA quickly fizzled out. As such, it’s good to be out of the trade now that it’s fallen back below its 50-day MA. With SKF, however, there is still a very good chance the trade will follow through to the upside. As such, we’re monitoring SKF (and SRS) for potential re-entry, and will send an Intraday Trade Alert if/when we decide to re-enter.
- We trailed the stop on IBB to just below the low of the past two days. If it comes back below that level and hits our new stop, we’ll still lock in a small gain on the trade.
- 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 71.28, target 76.48, unrealized points = + 2.94, unrealized P/L = + $588
UNG long (400 shares from June 11 entry) – bought 15.12, stop 13.59, target 19.80, unrealized points = (0.92), unrealized P/L = ($368)
DBA long (600 shares from June 17 entry) – bought 26.49, stop 25.64, target 28.78, unrealized points = (0.62), unrealized P/L = ($372)
Closed positions (since last report):
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SKF long (200 shares from June 24 entry) – bought 44.30, sold 41.21, points = (3.09), net P/L = ($622)
SLV long (700 shares total — 500 shares on June 8, 200 shares on June 11) –
bought 14.74 (avg.), sold 13.67, points = (1.07), net P/L = ($763)
Current equity exposure ($100,000 max. buying power):
- $35,798
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader