Commentary:

Major averages pulled back during the first ninety minutes of trading, which turned out to be a mild gut check for the bulls, as stocks reversed back up to the highs of the day through lunch. The afternoon session failed to provide any follow through, as broad market averages chopped around near the highs of the day until the close. The S&P Midcap 400 and small-cap Russell 2000 finished up 0.8% and 0.7% respectively. The S&P 500 gained 0.5%, while the Dow Jones Industrial Average and Nasdaq Composite both closed 0.3% higher.

Total volume eased off the prior day’s pace by 2% on the Nasdaq, but dropped 16% on the NYSE. We view Tuesday’s lighter volume advance as more of a positive sign overall, as stocks managed to reverse the early selling pressure and hold on to Monday’s strong gains. Market internals were mild, as upvolume beat downvolume by a 2 to 1 margin on the NYSE and 1.7 to 1 on the Nasdaq.

While broad market averages attempt to push through downtrend line and moving average resistance, the HOLDRS Semiconductor ETF (SMH) is already trading above all major moving averages:

SMH has formed a tight-range consolidation above the 50-day moving average (in teal). This short term pattern has held up much better than the major averages during the selloff. Looks as if SMH is poised to open above the range highs tomorrow morning, as it closed at 22.50 in after-hours trading. If SMH does gap higher on the open, make sure the gap holds over the first 20-minutes of trading before establishing a position. ProShares Ultra Semiconductors ETF (USD) is another option to play a potential semiconductor breakout with a move above 21.60.

SMH weekly chart shows the tight action over the past six weeks:

Another setup showing relative strength that is poised to breakout from a tight ranged consolidation is the iShares Turkey ETF (TUR). The sideways correction basically held above the 20-day EMA, retracing less than 15% of the last move up.

For those traders who do not feel comfortable buying breakouts, one could always take a half position on the breakout and add the remaining half position on the first pullback to reduce risk.

Speaking of pullbacks, after breaking out above 106.00 on big volume last week, FXY is pulling back on lighter volume to support. Look for a test of the prior swing high just above the rising 20-day EMA as a potential low-risk entry point (105.00-106.00 area). Exit the position on a break down below the 20-day EMA, as this would signal a false breakout.

Look for China to once again lead the way if US markets can break through resistance. The iShares Xinhua China 25 (FXI) is buyable on a move above the downtrend line on the daily chart below.

Intel (INTC) blasted higher on better than expected earnings after the bell, which launched the Nasdaq futures up 30 points by 5 p.m. (S&P 500 futures were up 12 points). We could potentially see the S&P 500 trading at or above resistance of the 50-day MA and the downtrend line (mentioned in yesterday’s report) on the open. If this gap holds up during the first 20-minutes of trading, then we would expect the rally to gain momentum and push higher in the short-term. If the gap up fails, then all bets are off to the long side.

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Today’s Watchlist:

We are stalking the semiconductor ETF’s for a potential buy entry on a breakout, but we’d like to see the gap hold up first before entering. As always, we will send an alert if any new trades are made.

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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 editors@morpheustrading.com.

Notes:

• No stops were triggered yesterday.
• 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 support@morpheustrading.com 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.

Edited by Deron Wagner,
MTG Founder and
Head Trader