Commentary:
Much like the previous day, stocks concluded the week with a lethargic, narrow-ranged session of trading. Opening higher, then chopping around throughout the rest of the day, the S&P 500 and Dow Jones Industrial Average gained 0.4% and 0.6% respectively. The Nasdaq Composite also gapped higher on the open, but showed relative weakness by selling off later in the morning. The tech-heavy index finished lower by less than 0.1%. Small and mid-cap stocks turned in the best performances. The Russell 2000 advanced 0.9%, as the S&P Midcap 400 rose 0.8%. The Nasdaq settled in the lower half of its intraday range, but the Dow closed near its high of the day.
Total volume in the NYSE eased 4%, while turnover in the Nasdaq was 10% lighter than the previous day’s level. In both exchanges, volume remained below 50-day average levels. In the NYSE, advancing volume exceeded declining volume by a margin of 2 to 1. The Nasdaq adv/dec volume ratio was flat. Overall, it was another lethargic session.
The utility sector has started to shine lately, and the S&P Utilities SPDR (XLU) was one of the best-performing ETFs last week. On the weekly chart of XLU below, notice how the ETF broke out above a key level of horizontal price resistance. Any pullback to near the area of that breakout over the next few days would present a low-risk buying opportunity into XLU:
Though there is apparently institutional rotation into the utilities sector right now, be aware that the industry is basically a value play. Therefore, short-term traders should not expect too much volatility out of an ETF such as XLU. Still, one benefit of trading the utilities ETFs over intermediate to longer-term timeframes is the substantial dividend distributions made my most utility stocks. XLU, for example, pays a quarterly dividend averaging around 30 cents per share.
In the December 11 issue of The Wagner Daily, we pointed out the potential buy setup in iShares Turkey Index (TUR). While that setup is still valid, the pattern in iPath India Index (INP) may be even better. The daily chart of INP is shown below:
On December 10, INP broke out to a new high, on volume that surged to approximately double its average daily level. Drifting lower in the afternoon, INP finished near the middle of the day’s range, but held above its breakout level. The following day, last Friday, INP traded within the previous day’s range, and still closed above the breakout level. We view an entry near the current price of INP to be a relatively low-risk pullback after breakout entry. Regular subscribers should note our specific trigger, stop, and target price for the INP setup below.
For months, the small-cap Russell 2000 Index had been lagging the S&P, Nasdaq, and Dow, but sentiment in the small-cap arena may be changing. Last week, the Russell 2000 closed fractionally lower, but held in a tight range, just above convergence of its 20 and 50-day moving averages. The index is now poised to break out above the high of its recent consolidation, which would enable the index to quickly catch up to the rest of the major indices. Take a look at the daily chart of iShares Russell 2000 (IWM), a popular ETF proxy for the Russell 2000 Index:
Although IWM could break out above its range in the near-term, the broad-based S&P 500 remains stuck in the sideways range that is now going on five-weeks old. No new news there. But the good news is the S&P will eventually make a decisive move out of the range. Further, the longer the consolidation continues, the more powerful the eventual breakout (either up or down) will be. Consolidations at the highs normally favor a resumption in the direction of the dominant trend, which would obviously be “up” in this case. However, with volume patterns still favoring the bears, it certainly pays to be cautious while the market tries to make up its mind.
Today’s Watchlist:
iPath India Index (INP)
Long
Shares = 100
Trigger = 64.15 (above last Friday’s close)
Stop = 60.75 (below the low of recent consolidation and 50-day MA)
Target = n/a (will trail stop)
Dividend Date = n/a
Notes = See commentary above for explanation of the setup. As with all new trade entries since the S&P has been stuck in a range, position size has been reduced so that risk is only HALF of our typical capital risk per trade.
In addition to INP, we’re also monitoring IWM for potential buy entry, in case the Russell 2000 breaks out. If we enter any new trades other than INP, 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.
- We are currently flat.
- 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.
- 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.
Having trouble seeing the position summary graphic above? Click here to view it directly on your Internet browser instead.
Notes:
Edited by Deron Wagner,
MTG Founder and Head Trader