Commentary:
A worse than expected earnings report from securities broker Morgan Stanley yesterday morning pressured the major indices on the open, but stocks once again showed grand resiliency and reversed their early losses. The main stock market indexes subsequently chopped around in a sideways range throughout the rest of the day. Closing 0.5% higher, the Nasdaq Composite maintained its incredible string of gains. However, the S&P 500 and Dow Jones Industrial Average registered modest losses of 0.1% and 0.4% respectively. The small-cap Russell 2000 climbed 0.7%, as the S&P Midcap 400 rose 0.4%. Showing late-day indecision, the S&P 500 settled in the middle of its intraday range. The Nasdaq finished slightly above the middle of its range and the Dow closed in the bottom quarter of its range.
Turnover was mixed. Total volume in the NYSE was 11% lighter than the previous day’s level, while volume in the Nasdaq was on par with the previous day’s level. Market internals were slightly better than Tuesday’s readings. Advancing volume in the Nasdaq exceeded declining volume by 2 to 1. The NYSE adv/dec volume ratio was positive by less than 3 to 2.
After several weeks of chop, the SPDR Gold Trust (GLD) is looking interesting again. Three days ago, GLD gapped above resistance of its 50-day moving average, and closed well above it. Since then, it has been consolidating in a tight, sideways range. A rally above the high of the past three days could lead to another substantial leg up in the shiny commodity. This is shown on the daily chart of GLD below:
Although GLD is currently in a bullish short-term trend, the big picture over the past six months appears rather indecisive on the daily chart. But a look at the longer-term weekly chart removes the noise, and shows the formation of a “symmetrical triangle” that has been developing. This is annotated on the weekly chart below:
Annotated by the blue trendlines, the symmetrical triangle has developed following a steady rise that began with the lows of November 2008. This pattern consists of two converging trendlines that form the shape of a tapering flag. This pattern typically represents a horizontal shape, rather than one of an uptrend or downtrend. A symmetrical triangle can be either bullish or bearish, depending on the direction of the preceding trend. However, the pattern generally leads to a continuation of the dominant trend. Since the preceding trend from November 2008 through February 2009 was a steady uptrend, odds would indicate an eventual up-side breakout above the upper channel resistance of the symmetrical triangle. By using the shorter-term daily chart to guide our potential entry, on a breakout above the three-day consolidation above the 50-day MA, one can enter the position in anticipation of further upside that eventually breaks out above the triangle. If that happens, a test of its all-time high, set in March of 2008, should quickly follow.
Because commodity ETFs are frequently whippy and indecisive in the short-term, it often makes sense to buy GLD on a major pullback that breaks obvious levels of support. Still, because of the bullish weekly chart pattern, a positive reward-risk ratio can still be obtained through buying a breakout above the three-day high of GLD, around the $94 level. Such an entry could be confirmed by higher volume that should accompany such a breakout. Even if the breakout starts to fail, one can simply scratch the trade with a quick exit, and wait for more price confirmation. Those who like the leveraged flavor of gold ETFs might consider buying Gold Double Long (DGP) or ProShares Ultra Gold (UGL) instead. The silver ETFs have a similarly bullish short-term pattern, but are showing relative weakness in the longer-term trends.
Today’s Watchlist:
Gold Double Long (DGP)
long
Shares = 400
Trigger = 20.88 (above the high of the past three days)
Stop = 19.48 (below the 10, 20, and 50-day moving averages)
Target = new highs (will trail a stop)
Dividend Date = n/a
Notes = See commentary above for explanation of the setup.
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.
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 position above.
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- 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