The Wagner Daily


Stocks broke their five-day winning streak last Friday, as a tight, range-bound session caused the major indices to close the day slightly lower. The S&P 500 edged 0.1% lower, while both the Nasdaq Composite and Dow Jones Industrial Average slipped 0.2%. Although the small-cap Russell 2000 lost 0.2%, the S&P Midcap 400 eked out a nominal gain of 0.1%. Most of the main stock market indexes settled near the middle of their intraday ranges, which doesn’t mean much considering the trading ranges were so narrow. For the week, the Nasdaq advanced 3.1%, the S&P 2.6%, and the Dow 1.7%. All the major indices closed the week at fresh 2009 highs.

Turnover eased across the board, enabling the S&P and Nasdaq to avert a bearish “distribution day.” Total volume in the NYSE declined 13%, while volume in the Nasdaq was 5% lighter than the previous day’s level. Still, volume in both exchanges exceeded 50-day average levels. Turnover was greater than average in every day of the holiday-shortened week. The advancing/declining volume ratio in both exchanges was only fractionally negative.

Although most energy stocks were little changed last Friday, the crude oil commodity sold off sharply. Tumbling 4.2%, the U.S. Oil Fund (USO) fell back below its 20 and 50-day moving averages. Now, the ETF is breaking down below support of its five-month uptrend line. This is shown on the daily chart of USO below:

If USO slices through support of both its August 17 and September 2 lows (as marked by the dotted horizontal line), such a move would confirm the break of key trendline support shown on the chart above. If that happens, substantial downside momentum would likely follow. A realistic downside target would be a 50% to 61.8% Fibonacci retracement from the February 2009 low to June 2009 high. That equates to the $29.25 to $31.50 area (the July 2009 low correlates to a 50% retracement). As an alternative to selling short a potential breakdown in USO, one might consider buying the inversely correlated PowerShares Crude Oil Double Short (DTO) if/when USO breaks support. However, as with many (not all) of the leveraged “short ETFs,” remember they’re most ideal for short-term trading. Their relative performance to the underlying indexes can decline over longer time frames.

While the U.S. Natural Gas Fund (UNG) continues to linger near its 52-week low, First Trust Natural Gas (FCG) sprung to life in a big way last week. Whereas UNG is designed to follow the movement of the natural gas commodity futures, FCG is instead comprised of individual stocks engaged in exploration and production of natural gas. Unlike other energy ETFs such as S&P Oil and Gas SPDR (XOP) and iShares Oil and Gas (IEO), both of which include oil and gas stocks, FCG is a “pure play” ETF comprised exclusively of natural gas stocks. Lately, the natural gas stocks have begun to outperform oil stocks by a considerable margin. Last Friday, for example, FCG gained 2.1%. Comparatively, both XOP and IEO advanced only 0.6%. Moreover, volume in FCG surged sharply higher throughout last week’s breakout above resistance. This is shown on the daily chart of FCG below:

In each of the past five days, as FCG has cruised higher, notice how volume has correspondingly been trending higher as well. This hints at institutional accumulation. Volume in last Friday’s session alone was quite impressive; turnover surged to 700% greater than its average daily level. For whatever reason (which is actually irrelevant), funds are clearly flowing into FCG. After a 13% gain last week, the reward/risk ratio of buying FCG right now is not very positive. However, if FCG pulls back to near its breakout level (around $15.25 to $15.50), it would present a more attractive buy entry. Alternatively, a “bull flag” may form over the next few days. If it does, we would consider buying the breakout above the upper channel of the “bull flag” pattern.

As for the broad market, all the major indices closed last week at fresh highs for 2009. The pullback of the previous week now marks new “swing lows” for the main stock market indexes. Since those “swing lows” were higher than the previous lows of mid-August, the bullish trend is technically still valid. In the event of a retracement in the coming week, those “swing lows” of September 2 and 3 will come into play as key levels of short-term support. If stocks pull back within the next few days, they will first run into support of their 20-day exponential moving averages. However, the major indices would also be in danger of failing last week’s breakouts. As suggested last week, be careful to avoid complacency with new and current positions. The biggest moves in the market frequently come when the least number of participants expect them.

Today’s Watchlist:

There are no new setups in the pre-market today. We’re still monitoring the SLX pullback setup from last Friday’s newsletter (which did not trigger), but do not want to list a specific price in the pre-market (due to sharply lower futures indications at the time of this writing). If any new positions are entered today, we’ll promptly send an Intraday Trade Alert with details.

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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  • Per the MTG Opening Gap Rules, we adjusted the FXI stop to be 15 cents above the 20-minute high on last Friday’s open. The stop was never hit, as FXI drifted back down after the initial opening gap up. Assuming FXI doesn’t hit that stop, we’ll look to tighten the stop back down as soon as the price action allows.
  • IBB stop raised to just below last Friday’s low, as it is trading at a pivotal breakout 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 [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.

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Edited by Deron Wagner,
MTG Founder and
Head Trader