Commentary:
Stocks concluded a strong week with a session of mild gains last Friday. The major indices moved sideways in a very tight range throughout the entire day, before finishing in marginally positive territory. The Dow Jones Industrial Average advanced 0.4% and the Nasdaq Composite ticked 0.3% higher. A narrow, seven-point intraday trading range in the S&P 500 led the index to an uneventful gain of just 0.1%. The small-cap Russell 2000 rallied 0.4%, but relative weakness in mid-caps caused the S&P Midcap 400 Index to edge 0.1% lower. The main stock market indexes closed just above the middle of their intraday ranges. For the week, both the S&P 500 and Nasdaq climbed 2.5%. The blue-chip Dow rose 2.2%.
Increasing 36% above the previous day’s level, total volume in the NYSE soared to its highest level in more than four months. Turnover in the Nasdaq was 15% higher. But even though volume levels were well above average, it definitely was not a show of buying enthusiasm on behalf of mutual funds, hedge funds, and other institutions. Rather, the faster pace of trading can primarily be attributed to last Friday’s “quadruple witching” options expiration day, the quarterly event in which contracts for stock options, single stock futures (SSF), stock index futures, and stock index options simultaneously expire. In both the NYSE and Nasdaq, advancing volume only fractionally exceeded declining volume.
Over the past week, we’ve been keeping an eye on the price action of First Trust Natural Gas (FCG), an ETF comprised exclusively of individual stocks engaged in the exploration and production of natural gas. Gaining 4.8% last week, FCG is still showing relative weakness to the broad market since its recent breakout above price consolidation. But since it has retraced back slightly over the past two days, FCG may present us with a low-risk pullback entry within the next day or two. Since FCG is still well above its breakout level, we’re merely looking for a touch of the 10-day moving average. Frequently, strongly trending stocks and ETFs will only pull back to their 10-day MAs before reversing to continue the dominant trend. On the daily chart below, notice the 10-day MA is currently at the $16.09 level, but that price will probably be a few cents higher after Monday’s trading session opens. Regular subscribers to The Wagner Daily will also see our detailed trigger and stop prices for this pullback buy setup below:
Early last week, Market Vectors Coal (KOL) broke out above the high of a six-week base of consolidation, then pulled back slightly to close the week. Now, KOL is forming a mini “bull flag” on its daily chart. Going into this week, bullish momentum from last week’s breakout could create a very short-term trading opportunity, in anticipation of a continuation of recent strength. With KOL closing right at support of its 20-EMA on the hourly chart, a partial position could be bought near its current price. The remaining shares could be added above the hourly downtrend line, over the $32 area. Since KOL broke out more recently than FCG, it may be less likely to see a touch of its 10-day MA before making another leg higher; hence, a more aggressive buy entry could be considered. However, if buying KOL near its current price, it’s important to have a very tight stop, perhaps just below last Friday’s low of $31.35. This is because KOL could fall substantially lower, to near its breakout level, if it fails to hold support of its 20-EMA on the hourly chart. Below is the daily chart of KOL:
Over the past two weeks, the price gains of the major indices have been accelerating, such that the relative slopes of the two-week uptrend lines are steeper than the slopes of the intermediate-term uptrending channels. When parabolic moves like this start to occur, it is unlikely such momentum can be sustained without a pullback, or at least a bit of price consolidation. If the main stock market indexes close Monday’s session below the lows of the past two days, a “swing high” pattern will have already been formed (the September 17 highs), and a new level of resistance can be identified. Such a pattern would provide traders with a logical area to at least secure partial profits on extended long positions they may be holding.
Today’s Watchlist:
First Trust Natural Gas (FCG)
Long
Shares = 400
Trigger = below $16.20 (pullback to near its 10-day MA)
Stop = $14.89 (below the breakout level and 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 buy entry. If FCG does not retrace down to our buy trigger, we will not enter the trade unless an alert is sent indicating action to the contrary.
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.
- No changes to the open positions above.
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Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader