A scary start turned into an encouraging finish yesterday, as stocks clawed their way back from sharp morning losses to finish only slightly lower. The major indices gapped down nearly 2% on the open, drifted in a narrow, sideways range through mid-day, then impressively marched higher in the final two hours of trading. By the closing bell, the Nasdaq Composite had slipped just 0.1%. The S&P 500 lost 0.2% and the Dow Jones Industrial Average declined 0.5%. The small-cap Russell 2000 was unchanged, as the S&P Midcap 400 eked out a gain of 0.1%. Each of the main stock market indexes settled at its intraday high.
Total volume in the NYSE swelled 14%, while volume in the Nasdaq rose 7% above the previous day’s level. Although the major indices closed in negative territory, the higher volume was more indicative of institutional accumulation than distribution. That’s because turnover was tracking only a few percent higher until the late afternoon rally began, at which point volume started ticking higher alongside of prices. Furthermore, it’s positive that stocks finished at their best levels of the day. Mutual funds, hedge funds, and other institutions apparently saw yesterday morning’s weakness as a buying opportunity. However, it’s notable that volume in both exchanges barely exceeded 50-day average levels.
Over the past week, a limited number of ETFs have stealthily shown relative strength and have broken out, or are poised to do so, above key areas of price resistance. Creeping higher in recent weeks, the KBW Insurance SPDR (KIE) is one such example. Yesterday, when the major indices opened below their February 23 lows, KIE opened just above Tuesday’s low. The subsequent rally in the broad market enabled KIE to close at the top of its recent range, which now positions the ETF to break out above a major band of horizontal price resistance on its weekly chart. Take a look:
If KIE rallies above the dashed horizontal line on the chart above, it will close at a fresh 52-week high. Bullish momentum from a breakout of such lengthy consolidation should send KIE on another leg up, establishing a new intermediate-term uptrend. To maintain a positive reward-risk ratio on the trade, one might consider a protective stop just 3 to 4% below the breakout level. This would protect against a failed breakout in an overall uncertain market environment.
Yesterday, the S&P Retail SPDR (XRT) broke out above the highs of a five-month band of consolidation, enabling the consumer-oriented ETF to close at its highest level of the past two years. Now that it has broken out, a slight retracement to the area of yesterday’s breakout, around the $36.85 to $37 area, presents a low-risk buy entry. A protective stop could neatly be place just below the $36 level, as support of both the 20 and 50-day moving averages is in that vicinity. The daily chart of XRT is shown below:
Finally, keep an eye on iShares Nasdaq Biotech (IBB), which we first discussed as a potential breakout in our February 23 commentary. Throughout the market’s intraday weakness of the past few days, IBB has held firm to its 20-day exponential moving average, and its recent consolidation is still valid. We continue to like IBB for buy entry on a rally above the $85.65 area. An updated snapshot of the setup is shown on the daily chart below:
In yesterday’s The Wagner Daily, we said the major indices were “stuck between a rock and a hard place,” which was support of the 20-day moving averages below and resistance of the 50-day moving averages overhead. Because of this pattern, we also said, “one should be prepared for high volatility in the coming days.” Yesterday’s large gap down and just as swift intraday reversal certainly confirmed our thoughts to be prepared for volatile price action. But even though yesterday’s price and volume patterns were bullish, the major indices remain between their 20 and 50-day moving averages going into today’s session. As such, stay alert and prepared for whippy or indecisive price action in today’s session as well. Stocks will soon make up their mind, but it’s important to focus on preserving capital until that happens.
There are no new setups in the pre-market today. There are a few ETFs we’re monitoring for potential buy entry (IBB, XRT, KIE, DGP, and perhaps FXI). However, because intraday price action has been so volatile lately, we prefer to assess the broad market before entering any new positions. If any new positions are entered today, we’ll promptly send an Intraday Trade Alert with details. Otherwise, we’ll just focus on managing our two existing positions.
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 open positions at this time. Both PSQ and EEV gave back their earlier gains yesterday afternoon, but PSQ is still near breakeven and EEV showing a gain. We’ll continue to monitor both positions closely, and may close either or both ETFs before their original stops, depending on market conditions.
- 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.
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Edited by Deron Wagner,
MTG Founder and Head Trader