Commentary:
Stocks closed out the week with a slow, inconclusive trading session that was as unremarkable as the previous day’s action. The major indices lazily oscillated in a tight, sideways range throughout the entire day, before settling with mixed results. The Nasdaq Composite edged 0.2% higher, as both the S&P 500 and Dow Jones Industrial Average lost 0.4%. The small-cap Russell 2000 advanced 0.4%, but the S&P Midcap 400 Index slipped 0.2%. All the main stock market indexes finished slightly above the middle of their intraday ranges.
Turnover declined from already apathetic levels, making it one of the slowest days in weeks. Total volume in the NYSE eased 8%, while volume in the Nasdaq was similarly 10% lighter than the previous day’s level. Volume exceeded average levels only once last week, representative of the summer doldrums kicking into full swing. Moreover, institutions were waiting on the sidelines ahead of a nimiety of quarterly earnings reports from market-moving companies, many of which are on tap this week. Like the stock market’s price action, market internals were mixed last Friday. In the NYSE, declining volume exceeded advancing volume by a margin of 2 to 1. The Nasdaq adv/dec volume ratio was positive by 3 to 2.
Most international ETFs have moved roughly in lockstep with the weakness in the domestic markets in recent weeks. However, iShares Xinhua China 25 (FXI) continues to show relative strength to the U.S. broad market. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite are all trading below their 50-day moving averages, and have just fallen below their prior lows from June to form new “swing lows.” Comparatively, FXI continues to hold above support of its 50-day MA, as well as its prior low from June. When the overall domestic market starts to bounce from its recent weakness, FXI could show clear leadership on the upside. On the daily chart below, we’ve illustrated a potential buy entry point for a short-term swing trade in FXI:
For those not familiar with the various Chinese ETFs, the portfolio of FXI is comprised of a small basket of stocks that trade on the mainland Shanghai Stock Exchange (SSE). For the sake of simplicity, think of the Xinhua index as the Chinese equivalent to the Dow Jones Industrial Average. Sporting a similar chart pattern to FXI, but different “under the hood,” is SPDR S&P China (GXC), whose portfolio consists of more than 100 individual stocks. FXI is tied to the performance of just 25 stocks. Although FXI is more widely traded than GXC, some may prefer the greater diversification of the latter’s portfolio.
The iShares Hong Kong Index (EWH) is technically a Chinese ETF as well, but is obviously composed of stocks traded on the Hong Kong Stock Exchange (HKEX). As with FXI and GXC, EWH is still holding above its prior low from June, though it slipped below its 50-day MA last week. Still, EWH is trading below its 50-day MA by just a narrow margin; one solid day of gains would propel the ETF back above the pivotal moving average. As such, you may also want to add EWH to your watchlist of ETFs exhibiting relative strength during the current correction in the U.S. markets:
As for the technical picture of the main stock market indexes, nothing has really changed since our last update. The S&P, Dow, and Nasdaq are all below their 50-day moving averages, while the S&P struggles to cling to its 200-day moving average. While it’s positive the S&P 500 is showing resilience at pivotal support of its 200-day moving average, the most important point is the index remains below the “neckline” of its dominant head and shoulders pattern, which we’ve discussed numerous times over the past two weeks. Unless that situation changes, one could expect a continued neutral to downward bias in the short-term of the broad market. As we’ve recently illustrated, a 50% price retracement from the March 2009 lows to June 2009 highs is certainly realistic. That would give the S&P a downside price target around the 810 area. However, it could certainly be bumpy along the way, especially considering the potential for curveballs thrown by the upcoming batch of corporate earnings reports.
Today’s Watchlist:
There are no new setups in the pre-market today. We prefer to lay low until we see the market’s reaction to the numerous earnings reports on tap this week. In the event of a positive reaction, we’ll consider FXI and/or EWH for potential trade entry. If any new trades are entered, we will 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.
PLEASE NOTE: As of July 1, we have updated to a more “user friendly” format for reporting open and closed positions (see below). Based on the familiar Microsoft Excel style, we believe the new, simplified format makes it much easier to see the status of all positions with just a quick glance. What do you think? We’d love to hear your opinion on the new format change. Just send an e-mail to [email protected].
- Per Intraday Trade Alert, we made a judgment call to sell SRS before last Friday’s close, locking in a gain of $1,000.
- Thanks for your feedback on the new format of our position summary. We’re studying all your comments and suggestions, and will be making tweaks to the format in the coming days and weeks. Feel free to send us further input. We value your comments!
- 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.
- 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.
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader