Logging solid gains across the board last Friday, stocks entered the holiday weekend on a positive note, but were still lower for the week. After gapping higher on the open, the major indices climbed throughout the first half of the day, then drifted in a sideways range in the afternoon. Driven by strength in the tech arena, the Nasdaq Composite advanced 1.8%. The S&P 500 gained 1.3% and the Dow Jones Industrial Average rallied 1.0%. The small-cap Russell 2000 and S&P Midcap 400 indices were higher by 1.4% and 1.3% respectively. Like the previous day, all the major indices closed at their intraday highs. For the week, the S&P 500 fell 1.2%, the Dow Jones Industrial Average 1.1%, and the Nasdaq Composite 0.5%.
As is typically the case ahead of holiday weekends, turnover eased across the board. Total volume in the NYSE declined 12%, while volume in the Nasdaq was 6% lighter than the previous day’s level. In both exchanges, volume was well below 50-day average levels. The slower trade failed to confirm the validity of last Friday’s gains, though we’ll know more about the true intentions of mutual funds, hedge funds, and other market-moving institutional players as traders begin returning to their desks this week. We’ll be paying close attention to the volume patterns of the S&P 500 and Nasdaq in the coming days, as it could help us determine whether stocks are likely to continue bouncing higher off last week’s lows, or if we’ll see a resumption of the weakness in the first half of last week.
Most international ETFs pulled back alongside of the domestic markets last week, but iShares Korea (EWY) and iShares Taiwan (EWT) bucked the trend by registering solid gains last week. More importantly, both ETFs are attempting to break out above lengthy bases of consolidation at their recent highs. This is shown on the daily charts of EWY and EWT below:
Because of last week’s corrective action in the U.S. markets, we’re not advocating one should blindly jump into buying the breakouts in either of the ETFs above. During corrective periods in the stock market, breakouts have a much higher rater of failure. However, just in case the market acts well, brushes off last week’s correction, and quickly moves back to its recent highs, we want to be prepared with an updated list of ETFs showing relative strength. Clearly, EWY and EWT should be on that watchlist.
With last week’s massive breakouts in gold and silver, look for continued bullish momentum in the associated ETFs. The spot gold commodity is once again testing pivotal resistance of the $1,000 per ounce mark. Gold has attempted to bust through the 1,000 level on three separate occasions over the past fourteen months, but failed to do so each time. Will this fourth time be a charm? Certainly, traders eyes will be focused on whether or not gold can accomplish the feat this time around. If it does, it will be interesting to see the implications, if any, of the direction of the overall stock market. The breakout level is shown on the weekly chart of the mini spot gold continuous futures contract (@YG) below:
Since we’re long Gold Double Long (DGP), we’re already positioned for a potential breakout above the 1,000 level. But even if that anticipated breakout occurs, we’ll still raise our stop to just below its breakout level, just so that we can still lock in a gain if the spot gold breakout happens to fail. Market Vectors Gold Miners (GDX) and iShares Silver Trust (SLV), both of which we analyzed last week, also surged to finish the week at key, long-term breakout levels. With the huge volume spikes all the precious metals ETFs experienced last week, there is apparently serious accumulation that could actually enable a sustainable breakout in gold to “stick” this week. As such, consider buying any of the precious metals ETFs on slight pullbacks to very short-term support levels (such as the 20-period exponential moving averages on the hourly charts).
In our September 4 commentary, we pointed out the buy setup in iPath S&P 500 VIX Short-Term (VXX). Specifically, it had pulled back to support of its prior downtrend line and 20-day EMA, after breaking out above those levels a few days prior. VXX subsequently continued pulling back in last Friday’s session, steeper than we anticipated, but the play is not quite dead yet; it could still snap back, as long as it closes above that day’s low in today’s session. We also continue to monitor the developing base in PowerShares U.S. Dollar Bull (UUP), which we plan to buy on a short to intermediate-term trend reversal, confirmed by a rally above its 50-day MA and September 1 high.
PowerShares U.S. Dollar Long (UUP)
Shares = 1,000
Trigger = 23.56 (above the 9/1 high and 50-day MA)
Stop = 22.89
Target = 24.85 (resistance of the 200-day MA)
Dividend Date = n/a
Notes = This setup from September 4 did not yet trigger, but remains on our watchlist going into today. Based on the base of support UUP is forming, with the 50-day moving average closing in, it appears UUP may be setting up for a short to intermediate-term trend reversal off the lows. We will buy when UUP confirms such action by rallying above its September 1 high and 50-day MA.
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.
- Because VXX closed near its stop price, we have adjusted our stop price a bit lower, just to give it a bit of “wiggle room” below support of last Friday’s low. Note that our capital risk on the trade is still very small (less than $200). Although we are tweaking the stop slightly lower, we had already raised the stop from well above its original stop price (perhaps a bit too quickly).
- Per Intraday Trade Alert, we moved our FXI stop back to its previous level. The tightened stop may have been too close to the 20/50-day MA convergence.
- 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.
Edited by Deron Wagner,
MTG Founder and