Commentary:
Traders returned from Easter weekend in a bullish mood, prompting the major indices to finally close at fresh 52-week highs, but lighter overall volume failed to confirm the breakout. The main stock market indexes opened higher, built on their early gains throughout the morning, then settled into a narrow, sideways range for the rest of the afternoon. The Nasdaq Composite advanced 1.1%, the S&P 500 0.8%, and the Dow Jones Industrial Average 0.4%. In yesterday’s commentary, we suggested mid-caps could show relative strength in the event of a broad-based breakout. Along with small-caps, that was clearly the case; the Russell 2000 and S&P Midcap 400 indices jumped 2.0% and 1.6% respectively. Each of the major indices finished near its intraday high.
Obviously, it was positive that the broad-based indices broke out above their recent trading ranges to score new 52-week closing highs yesterday. However, it was negative that such a key breakout occurred on slower trade. Total volume in the NYSE was 2% lighter than the previous day’s level, as turnover in the Nasdaq receded 11%. In both exchanges, volume also remained below 50-day average levels. Mutual funds, hedge funds, and other market-moving institutional players apparently remained on the sidelines yesterday, while retail investors drove the market higher. Although lighter volume breakouts should not necessarily be avoided altogether, rallies that lack the confirmation of institutional buying cannot be blindly trusted. As we typically see several times a year, lower volume gains can swiftly be erased by just one round of higher volume selling.
On April 1, both iShares Gold Trust (GLD) and iShares Silver Trust (SLV) gapped above resistance of their respective four-month downtrend lines. But between the two commodity ETFs, SLV is looking better and showing more relative strength. While GLD is still stuck in a sideways range of the past several months, SLV has broken out above its March highs. Below, the daily chart of SLV shows the recent breakout above its downtrend line:
At its current price, SLV may be too extended to achieve a positive reward-risk ratio for new position entry. However, a pullback to new support of the prior downtrend line would provide an ideal, low-risk buy point into SLV. As such, we’ll be monitoring the price action of SLV in the coming days for a retracement to support of the breakout, around the $17.25 to $17.30 area. To clearly illustrate the relative strength SLV is now showing to GLD, take a look at the “percentage change” chart that compares the relative price action of both ETFs over the past thirty days:
On the chart above, notice that SLV has rallied 14% over the past thirty days, while GLD has gained just 2.5% during the same period. More importantly, the overlay shows how SLV has just broken out above horizontal price resistance of its March highs, but GLD remains stuck in a sideways range. This chart confirms the relative strength of SLV over GLD, as well as the better pattern in SLV. Therefore, if the precious metals pull back to provide an entry point in the near-term, silver may actually shine better than gold. Because commodities often move inversely to the price of the U.S. dollar, one potential caveat to buying SLV is the recent strength of the U.S. Dollar Bull Index (UUP). Nevertheless, there have been numerous market cycles where both precious metals and the U.S. dollar simultaneously show strength. Yesterday, for example, UUP, GLD, and SLV all moved higher.
A spike the 10-year yield caused treasury bonds to plunge yesterday, causing many fixed-income ETFs to slice through critical levels of support. The iShares 20+ Year T-Bond (TLT) was one such example. As shown on the weekly chart below, TLT plummeted to a new multi-year low yesterday:
As TLT lost 1.7%, our position in the inversely correlated ProShares UltraShort 20+ Year Treasury (TBT) rallied 3.1%. However, because “short” ETFs use a daily rebalancing of their portfolio of derivatives to achieve their pricing, they typically underperform their underlying index — only marginally in the short-term, but much more over the long-term. As such, we are simply following the chart pattern of TLT, rather than basing our technical analysis directly on the chart of TBT. Ideally, selling short TLT is probably better than buying TBT. Still, through buying TBT, traders with non-marginable cash accounts (such as an IRA) can still take a bearish position on the price of long-term treasuries (which is essentially a bullish stance on interest rates). If yesterday’s bond market action was any indication, traders may be expecting the Fed to finally bump up the Fed Funds Rate in the near future.
Presently, we have five open positions in our model ETF portfolio. Yesterday, all five moved in our favor, and only one of the positions is presently showing a loss, albeit a rather small one. We’ll conclude today’s Wagner Daily with a concise update on each one below;
- FXI – Showing an unrealized gain of 6% since our March 26 entry. Acting very well, but may take a rest upon testing resistance of its January 2010 high.
- UUP – Has pulled back to support of its 20-day EMA and February breakout level. Still showing a decent unrealized gain, but needs to hold above the 50-day MA.
- TBT – Discussed in detail above, this ETF moved into the plus column with yesterday’s breakout. Basing trading decisions on TLT chart.
- IAI – Our April 1 entry working out so far, and we anticipate further sector rotation into the broker-dealer sector. Watch the chart of GS as a leading trend indicator.
- BRF – We are short BRF due to its intermediate-term relative weakness. While most international ETFs went up yesterday, BRF moved lower, so it’s still weak.
Today’s Watchlist:
There are no new setups in the pre-market today, as we now have five open positions. We’ll focus on managing these positions for maximum profitability and minimal risk this week. 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.
- No changes to the open positions above, each of which moved in our favor yesterday, including the BRF short. Updated details on open positions shown in commentary above.
- 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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Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader