Stocks returned from the holiday extended weekend in bullish fahsion. Broad market averages steadily pushed higher throughout the day and recaptured all of last Friday’s losses, closing up more than 1% across the board. The lone knock on Monday’s action is that volume declined on both the NYSE and Nasdaq, but overall, it was a positive response to Friday’s distribution. The small-cap Russell 2000 led the advance closing up 1.8%. The Nasdaq Composite, S&P Midcap 400, and S&P 500 all closed with an average gain of 1.3%. The Dow Jones Industrial Average added 1.1%.
Total volume fell off Friday’s option expiration pace by more than 20% on both exchanges. However, total volume did close at/near its 50-day moving average (on both exchanges), so we can’t just dismiss Monday’s session as a bearish, light volume rally. Market internals were solid on the NYSE, as advancing issues beat declining issues by a three to one margin, and upvolume beat downvolume by five to one.
Last summer there was a rotation of money into energy and financials after a few months of corrective price action. We are beginning to see that same money flow once again, as evidenced by the recent strength in ETFs such as OIH, XLE, and XLF after a two-month correction. Regional Bank HOLDR (RKH) has also formed a bullish pattern of consolidation over the past few months:
RKH printed a double bottom by undercutting the prior swing low in mid-December. The impulsive price action on the rally off the lows confirms that the dip below the low of November 2 was just a shakeout. It now looks to be forming some sort of handle and is buyable on weakness to support of the 20-day EMA. Look for the price action to tighten up over a few days for another potential buy point, as buying the move out above the current range high (around 83.50) may be a bit too obvious.
The PowerShares Commodity Index ETF (DBC) failed a recent base breakout in early January and pulled back to the 50-day MA. The sharp selloff has created a bullish washout, so the next move out could possibly be the one to go.
After gapping down beneath the prior day’s low on Monday morning, DBC put in a bullish reversal and closed back above the 50-day MA on a pick up in volume. DBC is buyable around the 50-day MA and on the move out above the 20-day MA.
Continuing with the energy theme, we are seeing a potential lower level basing pattern develop on the weekly chart of the Natural Gas ETF (UNG) below:
Since breaking above the 10-week MA and a seven month downtrend line in mid-December, UNG has formed a tight-ranged consolidation while holding above the 10-week MA. We also see that the 10-week MA is beginning to slope up, which suggests that a potential intermediate-term trend reversal may be on the way. Look to the weekly charts of JJC, USO, and PGM to get an idea of what to expect for this type of setup. One could establish a small (and very patient) position at/near the lows of the range, especially if there is some sort of bullish undercut below 9.50 that holds up.
There are no new setups in the pre-market today. If we enter anything new, 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.
- PGM triggered per yesterday’s watchlist parameters.
- 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