Commentary:
Throughout most of the day, it looked as though stocks were finally going to break their winning streak, but a late-day push in the final hour of trading enabled the major indices to score another round of gains. Blue chips led the way this time, as the Dow Jones Industrial Average climbed 0.8%. The S&P 500 and Nasdaq Composite posted matching gains of 0.4%. Small and mid-caps lagged. The Russell 2000 lost 0.3% and the S&P Midcap 400 advanced less than 0.1%. All the main stock market indexes again closed near their intraday highs.
Total volume in the NYSE increased 7%, while volume in the Nasdaq was 9% higher than the previous day’s level. On the surface, the higher turnover implies yesterday’s session was a bullish “accumulation day,” but a closer look beneath the surface reveals a different picture. As the stock market was trading in negative territory throughout most of the day, total volume in the NYSE, as of 2:30 pm, was tracking 15% higher. At the same time of day, volume in the Nasdaq was on pace to be 10% higher than the prior day. Then, as stocks rallied in the final ninety minutes of trading, volume actually decreased, finishing the day with lighter volume increases than earlier in the day. This tells us yesterday was actually a session of “churning,” where institutions were selling into strength, rather than one of institutional buying. Nevertheless, just one session of bearish “churning” is not enough to derail a strong rally; yet, it’s still a noteworthy observation. It’s also notable that, in the NYSE, declining volume marginally exceeded advancing volume. The adv/dec volume ratio in the Nasdaq was only fractionally positive.
Now that the stock market appears to be entering a new phase of bullishness, let’s take an updated look at the longer-term weekly charts of the major indices. The daily charts show the Nasdaq convincingly above its June 2009 high, and the S&P and Dow testing their June highs. But the weekly charts have the benefit of showing the “big picture” of the longer-term trends. We’ll begin with looking at a weekly chart of the benchmark S&P 500 Index (moving averages removed so you can more easily see the trendlines):
Obviously, the short-term trend of the S&P 500 has been rather bullish, as the index has logged a gain for seven consecutive sessions. But the key question right now is whether or not the S&P 500 will confirm the breakout above pivotal resistance of its June 2009 high, which roughly converges with its January 2009 high as well. The dotted, horizontal line on the chart above marks the weekly closing high from June 2009. Presently, the S&P 500 is on track for a higher weekly closing price, though the index is still a few points below the absolute high from the middle of last month. Based on recent price action, there’s a pretty good chance the S&P will firmly break out above its June 2009 high in the near future. However, a very short-term correction (either a pullback or consolidation) could easily occur first. If the S&P manages to enter into a new, intermediate-term uptrend, by convincingly busting out above its June 2009 highs, bullish momentum could carry the index several hundred points higher, perhaps up to its descending, multi-year downtrend line. Next, take a look at the Dow Jones Industrial Average:
The weekly chart of the Dow is similar to that of the S&P 500. Slight relative weakness in the Dow can be seen, based on the greater depth of its recent correction, as well as the fact that the Dow is still well below resistance of its January 2009 high. Like the S&P 500, the Dow’s long-term downtrend line has been in place for nearly two years. Although the Dow is perhaps the most widely discussed index by the financial media, the reality is that it’s a narrow-based index of just thirty stocks. Since most sustainable bull markets are led by growth stocks, the performance of the Dow really is really of secondary importance. Still, it acts as an important “psychological indicator” of the overall stock market’s health because so many people follow it. Finally, here’s the Nasdaq Composite:
As we’ve been saying in our commentary for months, the Nasdaq has the most relative strength of the major indices. It is the only one of the three indexes that has already convincingly broken out above its June 2009 highs, meaning the index is in a confirmed intermediate-term uptrend, as well as a short-term uptrend. As such, a pullback to the area of the recent breakout level of the June highs provides a relatively low-risk entry point for new long positions in the Nasdaq. With the Nasdaq rapidly ascending, and the multi-year downtrend line steadily moving lower, we may soon see a test of that pivotal level of long-term resistance. IF the stock market is to see another bearish period sometime this year, resistance of that long-term downtrend line would certainly provide a convenient excuse for such a correction to start. But we won’t plan for that until it happens. For now, and as always, we’ll trade what we see, not what we think!
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 = This setup from July 20 did not yet trigger, but remains on our watchlist going into today. 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.
In addition to FXB, we continue to monitor the strong tech ETFs for potential buy entry on the first substantial pullback. We’ll send an Intraday Trade Alert if/when we enter any other new positions today.
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].
- No changes to the open positions above.
- 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