Commentary:

Building on momentum from Wednesday’s breakout to new 2009 closing highs in the S&P and Nasdaq, stocks registered their fifth consecutive day of gains yesterday. Like the previous day, a late-day pullback temporarily threatened the market’s gains, but the resilient bulls again pushed stocks higher into the close. Not surprisingly, the Nasdaq Composite continued to show relative strength, gaining 1.2%. The S&P 500 rallied 1.0% and the Dow Jones Industrial Average closed 0.8% higher. All the main stock market indexes finished at their intraday highs.

On Wednesday, the Nasdaq registered a bullish “accumulation day,” but turnover in the NYSE was lighter. Yesterday, the NYSE played “catch up,” as volume in the exchange rose 6% above the previous day’s level. Conversely, volume in the Nasdaq eased 3%. In both the NYSE and Nasdaq, advancing volume exceeded declining volume by a margin of 4 to 1, an improvement in the NYSE as well.

Yesterday, Market Vectors Steel (SLX) broke out above a key area of horizontal price resistance and the high of its recent consolidation. The S&P Materials SPDR (XLB), another ETF in the basic materials sector, is also poised to breakout. In the case of SLX, a slight pullback to just above its breakout level, around the $49.50 to $50 area, presents an ideal entry point. In the current environment, we like buying the first pullback that follows a breakout, rather than buying the actual breakout, as there is less risk of getting stuck in a “failed breakout.” Nevertheless, XLB could be bought just above the breakout of its three-day high. To protect against a failed breakout, a tight, intraday stop can be used. Below are daily charts of SLX and XLB:

Market Vectors Agribusiness (MOO), comprised of stocks related in some manner to the agriculture industry, has been consolidating in a tight range, near its recent highs, for the past six weeks. With the 20 and 50-day moving averages providing support below, MOO could be poised to break out in the near future. Take a look:

Ironically, PowerShares Agriculture Fund (DBA) recently broke down below a major level of support, and is now bouncing into new resistance of that prior support level. Unlike MOO, which is comprised of individual stocks pertaining to agriculture, the portfolio of DBA exclusively consists of agricultural commodity futures contracts (such as corn, wheat, and soybeans). The bearish pattern of DBA is shown below:

Yesterday, the S&P 500 and Nasdaq Composite rallied to close above the prior intraday highs from August, complementing Wednesday’s rally to just new closing highs. The Dow remains just a few points below its intraday highs from August. At this point, the potential “head and shoulders” pattern on the daily charts that we’ve recently discussed has essentially been invalidated. If a correction were to occur at current levels, it would more closely resemble a short-term “double top” pattern. But as long as this bullish momentum persists, there’s no reason to assume that will occur — then again, did you ever notice the biggest corrections tend to happen when the least number of market participants are expecting them? Stay alert out there and don’t be complacent with new and existing positions.

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Today’s Watchlist:

Market Vectors Steel (SLX)
long

Shares = 200
Trigger = pullback to 49.70 or lower
Stop = 47.32 (below the 20-day EMA)
Target = no target (will trail stop)
Dividend Date = n/a

Notes = See commentary above for explanation of this setup. Note this is a pullback entry. As such, we will only enter SLX if it pulls back to this price level (which is subject to be tweaked if necessary).

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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.

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Notes:

• IBB stop has been tightened to just below support of the three-day low, just in case IBB is unable to hold the breakout above the $80 level.

• 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