Sparked by weakness in overseas markets, stocks got off to a negative start yesterday morning, but the market quickly stabilized and grinded higher throughout the day. By the closing bell, the major indices had reversed substantial opening losses to moderate closing gains. The S&P 500 and Nasdaq Composite, both down 0.7% on the open, finished higher by 0.6% and 0.5% respectively. The laggard Dow Jones Industrial Average gained only 0.2%. The small-cap Russell 2000 and S&P Midcap 400 indices scored identical gains of 1.1%. All the main stock market indexes closed at their best levels of the day.
The one thing lacking from yesterday’s bullish intraday reversal was strong volume. Total volume in the NYSE was 6% lighter than the previous day’s level, while volume in the Nasdaq declined 7%. In the Nasdaq, it was the third straight day of declining volume. Market internals reversed from negative levels in the early going to finish modestly positive. In both the NYSE and Nasdaq, advancing volume exceeded declining volume by a margin of 2 to 1.
On September 8, PowerShares Base Metals (DBB) attempted to break out above the high of its recent consolidation, but ran into resistance of its prior high from mid-August. Since then, it has drifted lower, and “undercut” its 20-day exponential moving average (EMA) yesterday. On the daily chart, DBB looks a bit choppy, but the longer-term weekly chart shows DBB has been consolidating in a range for the past seven weeks, and the 10-week moving average has risen up to provide support. Both the daily and weekly charts of DBB are shown below:
The “undercut” of its 20-day EMA (on the first chart), combined with the touch of its 10-week MA (on the second chart), may cause DBB to rally above its recent range and stick this time. We like DBB for potential buy entry above yesterday’s high of $18.10. Such a move would put DBB back above its 20-day EMA. Moreover, it’s a bonus that DBB has a low correlation to the direction of the overall stock market. As such, there’s less cause for concern of entering a new bullish position when the broad market may be reaching short-term “overbought” levels.
In addition to the DBB setup above, Market Vectors Steel (SLX) and First Trust Natural Gas (FCG) remain on our watchlist for potential buy entry on a pullback. We’ve recently analyzed charts of both ETFs. Additionally, iShares DJ Transportation (IYT), which broke out on September 10, has suddenly begun showing relative strength to the broad market, and may present an attractive buy entry on a pullback to the area of its recent breakout (around the $68.50 to $69 range).
PowerShares Base Metals (DBB)
Shares = 400
Trigger = $18.19 (above yesterday’s high and 20-day EMA)
Stop = $16.89 (below the low of the recent range and 50-day MA support)
Target = breakout above the consolidation (will trail stop)
Dividend Date = n/a
Notes = See commentary above for explanation of the setup.
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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Edited by Deron Wagner,
MTG Founder and