Much like the previous day’s action, the major indices engaged in a lot of “huffing and puffing” throughout the day, but ultimately finished last Friday’s session near the flat line. Stocks rallied in the morning, reversed to new lows of the day a few hours later, then stabilized and drifted above their lows into the closing bell. Both the S&P 500 and Nasdaq Composite edged 0.1% higher. The Dow Jones Industrial Average, Russell 2000, and S&P Midcap 400 indices all slipped 0.1% lower. The main stock market indexes settled just above the bottom third of their intraday ranges. For the week, the broad-based indices scored a round of moderate gains; it was the broad market’s fourth consecutive weekly advance.
Turnover eased across the board. Total volume in the NYSE receded 11%, while volume in the Nasdaq was 13% lighter than the previous day’s level. Slower trade during sessions of consolidation is positive because it indicates traders are not selling into strength while the bulls take a rest. Nevertheless, the prior day’s session was marked by bearish “churning,” and there was also one “distribution day” last week. Market internals in both exchanges were fractionally positive, despite the mixed closing prices.
After lagging behind for a year, the financial sector finally began showing considerable relative strength over the past month. Upon detecting the new inflow of funds into the financial industry, we bought KBW Capital Markets SPDR (KCE) on March 4, when it broke out above resistance of a five-month downtrend line at the beginning of this month. After trending steadily higher, we subsequently sold into strength on March 17, exiting near its highest level of the month. At the time, we said we would monitor KCE for potential re-entry on a pullback. But rather than retracing substantially, KCE has consolidated in a sideways range, which is known as a “correction by time.” This has enabled the ascending 20-day exponential moving average to rise to meet the price of KCE, which has also come into support of its intermediate-term uptrend line off the February low. This is shown on the daily chart of KCE below:
Technically, KCE may already be buyable near last Friday’s closing price. However, with pullback entries, we usually prefer to wait for an “undercut” below the obvious level of support. In this case, that would be a probe below the 20-day EMA (the beige line) and/or the March 15 low of $36.94. Waiting for the “undercut” ensures a better reward/risk entry when buying on the way back up, as it has the effect of shaking out traders with tight stops, who are then forced to buy back in, thereby driving prices higher. Time and time again, we see the strongest rallies resulting from a pullback that “undercut” an obvious level of support. Obviously, the “undercut” doesn’t always happen, in which case it’s still a decent place to buy KCE, but we’ll monitor the price action over the next day or two first.
Speaking of “undercuts,” take a look at the daily chart of iShares Xinhua China 25 Index (FXI):
On March 25, FXI gapped down to close below its 50-day MA by a few cents, as well as “undercut” its March 4 low of $39.99 on an intraday basis (the low of the consolidation range). But notice the bullish price action the very next day. FXI immediately gapped up to close above the March 25 high. This action prompted us to buy an initial half position in FXI, which we’ve been monitoring for potential breakout above its four-month downtrend line. A rally above the March 26 high will correspond to a breakout above that downtrend line, and will also trigger our buy entry into the remaining shares of FXI. In the pre-market, FXI is presently poised to open about 1.5% higher. So far, the ETF appears to be showing relative strength and the necessary momentum to reverse its downtrend.
Last Friday, the first half of FXI triggered for buy entry. Going into today, we will be adding an additional 150 shares if FXI trades above $41.60. Stop will remain the same for full position. Separately, the DZZ setup from last week did not trigger, and has been temporarily removed from our watchlist. There are no additional ETF setups in the pre-market, as we now have four open positions, albeit with rather low correlation to the direction of the domestic broad market.
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.
- The first HALF of the FXI buy setup triggered for entry last Friday, giving us an initial 150 share position. As mentioned above, we will buy an additional 150 shares if FXI trades above $41.60 today (above the four-month downtrend line and 200-day MA). Same stop on full position if additional shares trigger.
- Per Intraday Trade Alert, we bought TBT on a pullback last Friday. We anticipate confirmation of a downtrend line break within the next several days.
- 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.
Edited by Deron Wagner,
MTG Founder and Head Trader