Commentary:

Following a similar pattern to the previous day’s session, stocks finally appeared to be headed for a correction throughout the morning, but the major indices shrugged off most of the early weakness to close with mixed results. The Nasdaq Composite advanced 0.4% and finished at a fresh, ten-month closing high. Down as much as 1.3% at its intraday low, the S&P 500 Index recovered to lose just 0.3%. The Dow Jones Industrial Average was off by just 0.1%. The small-cap Russell 2000 settled 0.2% higher, while the S&P Midcap 400 declined by the same percentage. The Nasdaq closed near its best level of the day, as the S&P and Dow finished around the upper quarter of their intraday ranges.

Total volume increased 4% in the NYSE and 19% in the Nasdaq. On the surface, the intraday price action of the broad market resembled the prior day’s pattern. However, a deeper look beneath the surface reveals a bit of bearishness in the volume pattern of the NYSE. The sharp increase in volume, combined with slight closing losses in the S&P and Dow, indicates the presence of “churning” yesterday. Churning occurs when institutions sell into strength, near the highs of a recent move. This enables their selling to be rather stealth, as the losses on churning days are usually minimal to nill. Since the major indices are in a consolidation pattern right now, lighter volume would have indicated the bulls were merely taking a rest, and the bears were staying in hibernation. Nevertheless, given the market’s incredible rally of the past few weeks, a bit of selling into strength is to be expected. At this point, a single session of churning is not cause for alarm.

Yesterday, we illustrated that iPath India Index (INP), a leading international ETF since the rally off the March lows began, was setting up for another breakout to a new high. Upon scanning the rest of the international ETFs, we noticed iShares Spain Index (EWP) has been exhibiting impressive relative strength over the past few weeks. While the U.S. markets have been deliberating over the past few days, EWP has continued higher; it has gained in each of the past six sessions. As such, EWP is now on our radar screen for potential entry on the first pullback to support. The daily chart of EWP is shown below:

As we’ve discussed in recent days, the 10-day moving average is an ideal place to enter very strongly trending ETFs on a pullback. Presently, the 10-day moving average of EWP is at the $42.68 level. One point below that is the 20-day exponential moving average, a more significant area of support to buy a pullback. Even better is that support of the breakout above the June 2009 highs of EWP (the dashed, horizontal line) is just a few cents below the 20-day EMA. Therefore, we’re interested in buying EWP on a pullback to the area between its 10 and 20-day moving averages, around $41.70 to $42.70.

Further east on the globe, iShares Malaysia (EWM) is showing nearly as much relative strength as iShares Spain. We like EWM for potential buy entry on a pullback to the $9.25 to $9.45 area:

In yesterday’s newsletter, we looked at potential breakout plays in GDX and INP, as well as a possible pullback setup in IBB. Of those three, GDX may temporarily be removed from the watchlist, as it broke firmly below support of its 50-day MA yesterday. Since it never hit our trigger price for entry, there was no harm done. That leaves us with the following ETFs on our watchlist for possible buy entry: INP for breakout entry, and SMH, IBB, EWP and EWM for pullback entries.

Overall, the stock market has been a bit confused and nervous over the past three days. With the exception of yesterday’s churning in the S&P and Dow, we’ve not yet seen any clear instances of selling into strength of the market’s incredible move of the past few weeks. Still, the bulls have been getting nervous on the market’s open each day, only to regain their confidence later in the day. With such indecisive and choppy price action, a sharp move could be on tap in the near-term. But in which direction, you might ask? Frankly, either direction wouldn’t surprise us. A substantial pullback would not be out of the norm, and would certainly be healthy for the longer-term of the market’s current rally. Yet, with no significant overhead resistance to contend with near current levels, the major indices could just as easily rocket higher again. This is a good time to be alert, keeping your left hand on the sell button, and at least a few fingers of your right hand on the buy button.

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Today’s Watchlist:

iPath India Index (INP)
long

Shares = 150
Trigger = 53.54 (above the highs of the consolidation)
Stop = 49.30 (below the rising 50-day MA support)
Target = new highs (will trail stop)
Dividend Date = n/a

Notes = INP has been a leading international ETF for the past several months, and is again poised to make another leg up. We recently sold INP for a large gain, near its current price, but are stalking it for potential re-entry above the highs of the range.

In addition to the INP setup, we’re monitoring the following ETFs for possible buy entries on a pullback: SMH, IBB, EWP, and EWM. If any of these ETFs come into our buy zone and we decide to enter, we’ll promptly send an Intraday Trade Alert with details.

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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 changes to our 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 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