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The Wagner Daily


Commentary:

Showing encouraging resilience to close the week, the major indices consolidated in a tight, sideways range throughout last Friday’s session, before finishing near the flat line. The Dow Jones Industrial Average ticked 0.4% higher, the Nasdaq Composite gained 0.1%, and the S&P 500 lost less than 0.1%. The small-cap Russell 2000 and S&P Midcap 400 shed 0.5% and 0.3% respectively. The main stock market indexes closed near their intraday highs, and at the best levels of the week. The Nasdaq Composite rocketed 7.4% higher for the week, the Dow Jones Industrial Average 7.3%, and the S&P 500 7.0%.

Turnover was mixed last Friday. Total volume in the NYSE rose 10% above the previous day’s level, while volume in the Nasdaq eased 10%. Monthly options expiration helped drive volume higher; otherwise, trading in the NYSE probably would have receded as well. Lighter turnover on bullish consolidation days is positive, as it indicates traders are content to sit on their positions, rather than sell into strength. In both the NYSE and Nasdaq, advancing volume was roughly on par with declining volume.

In the July 17 issue of The Wagner Daily, we looked at numerous ETF charts that were setting up for potential buy entry. However, like the major indices, most of these ETFs were little changed in the latest session. As such, they remain on our watchlist going into today. Those ETFs include: iShares Turkey (TUR), iShares South Korea (EWY), Utilities SPDR (XLU), Healthcare SPDR (XLV), CurrencyShares Japanese Yen (FXY), and CurrencyShares British Pound (FXB). But of all the various industry sectors, the technology-related ETFs are clearly showing the most relative strength right now, and are at the top of our interest list for new buys. While the S&P and Dow are still below their June 2009 highs, and the Nasdaq has only narrowly closed above its June high, the following tech-related ETFs have led the broad market by having already (convincingly) broken out above their June highs:

Although the tech sector is now looking rather strong, and is our focus for new buys, the turnaround was quite swift and sudden. Since the Nasdaq has scored eight consecutive days of gains, the reward/risk ratio of new entries at current levels may not be very ideal. Rather, we’re patiently waiting for the first pullback, or “shakeout,” that causes the tech ETFs to retrace to near support of their breakout levels (the dashed horizontal lines on the charts above). The 10-day moving averages (the purple dotted lines) are also used in this type of setup, as reliable levels of very short-term support. Through years of experience, we’ve learned the importance of waiting for proper entry points if not buying the initial breakout, rather than chasing the price action.

There’s no denying the bullishness of last week’s session. After being in correction mode for the past month, the major indices swiftly reversed higher, breaking out above resistance of their “swing highs” from late June. Strength in the tech sector even enabled the Nasdaq brothers (Nasdaq Composite and Nasdaq 100 indices) to move above resistance of their June 2009 highs, causing both indexes to close the week at nine-month highs. The S&P 500 and Dow Jones Industrials are still below their June highs, though certainly within striking distance. The broad-based rally that enabled the S&P and Dow to shatter their bearish “head and shoulders” patterns last week should lead to further momentum in the near-term, which should lead to a test of those June highs. Yet, until we see a breakout above those June highs, the broadening trading ranges of their daily chart patterns means the S&P and Dow are now best described as choppy.

As we’re smack in the middle of corporate earnings season, renowned for its ability to throw the stock market plenty of curveballs, astute traders will approach the next few weeks with an extra ounce of caution. Nevertheless, overall sentiment has clearly become bullish, and the best odds of profitability right now should come from the long side of the market. Our short-term plan is to remain focused on initiating new long positions in ETFs showing the most relative strength, largely defined as those having already broken out above their June 2009 highs. However, because of choppy daily chart patterns in several of the major indices, we’re primarily interested in buying ETFs that pull back to significant support levels after they’ve broken out, rather than buying the initial breakouts.


Today’s Watchlist:


CurrencyShares British Pound (FXB)
long

Shares = 100
Trigger = 166.18 (above the high of the consolidation)
Stop = 159.90 (below the “swing low” and 50-day MA support)
Target = 177.80 (approx. 61.8% Fibonacci retracement of last move down)
Dividend Date = n/a

Notes = As the U.S. dollar continues to weaken against global currencies, the British Pound (FXB) is setting up for potential breakout entry. We plan to buy on a rally above the high of the consolidation.

As explained in today’s commentary, tech ETFs are the main focus right now, but we’re waiting for proper entry points, rather than chasing them at current price levels.


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].

    Notes:

  • We have raised the INP stop to breakeven, thereby removing risk from the trade. We will continue to trail the stop higher as price action allows. With our new position reporting format, changes to stop prices can be quickly recognized by any cells shaded in pink color.

  • 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.

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Edited by Deron Wagner,
MTG Founder and
Head Trader

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