--> U.S. Oil Fund (USO) setting up for short entry

U.S. Oil Fund (USO) setting up for short entry


Giving back a significant portion of the previous day’s gains, stocks entered the past holiday weekend on a negative note. The major indices chopped around in indecisive fashion throughout most of the day, but a swift, last-minute decline ahead of the closing bell caused the broad market to finish the day substantially lower. The Nasdaq Composite lost 0.9%, as both the S&P 500 and Dow Jones Industrial Average fell 1.2%. The small-cap Russell 2000 and S&P Midcap 400 erased 1.3% and 1.1% respectively. The S&P and Dow settled in the bottom quarter of their intraday ranges. Showing a bit of relative strength throughout the day, the Nasdaq closed just below the middle of the day’s range.

Turnover was mixed. Easing for a third straight day, total volume in the NYSE was 9% lighter than the previous day’s level. Total volume in the Nasdaq ticked 2% higher. Not surprisingly, trading in both exchanges was below 50-day average levels; volume typically recedes ahead of three-day weekends. In the NYSE, declining volume exceeded advancing volume by a margin of 5 to 1. The Nasdaq adv/dec volume ratio was negative by 4 to 1. These ratios indicate last Friday’s selling was broad-based, rather than concentrated on just a few industry sectors.

Last Friday afternoon, we initiated a new short position in Market Vectors Gold Miners (GDX). The daily chart below summarizes the setup:


On May 11, GDX gapped up sharply and looked as though it was on its way to a new high, but it quickly stalled and reversed upon running into resistance of its December 2009 high a day later. Two weeks lower, GDX had plunged through support of its 50-day MA and formed a “lower low” (shown on the chart above). Though GDX subsequently bounced off support of its 200-day moving average, it may now be forming a “lower high” that follows the “lower low” recently set. It’s also trading at resistance of its 50% Fibonacci retracement level from its May 2010 high to low. Furthermore, GDX now appears to be forming the right shoulder of a bearish “head and shoulders” pattern (with a descending neckline, the weakest kind).

Although the performance of GDX is somewhat correlated to the trend of the actual spot gold commodity (GLD), individual gold mining stocks do not always move in sync with the actual precious metal. In recent months, GDX has been lagging behind and showing relative weakness GLD. Last month, for example, GLD traded to a new all-time high (albeit briefly), but GDX merely formed a potential “double top” at its prior highs. Now, because of how steep its last retracement was, GLD may be stalling on the way back up to its prior high. But even if it doesn’t, there is clear relative weakness in the individual mining stocks (and GDX).

In our May 28 commentary, we said the broad market may be finding support to form a short-term uptrend, but the intermediate-term trends remain “down.” Given that last Friday’s session was marked by substantial losses, nothing has changed going into today. Our primary plan is still to initiate new short positions into strength of any weak ETFs that bounce into major resistance levels. USO, BBH, and PPH, all of which were discussed in our most recent commentary, are a few such ETFs on our short watchlist. Finally, remember that day-to-day volatility remains high. As such, consider taking reduced share size, along with wider stops, on any new positions entered this week.

Today’s Watchlist:

U.S. Oil Fund (USO)

Shares = 200
Trigger = $35.78 (probe above the convergence of price resistance)
Stop = $38.43 (above the 200-day MA and 61.8% Fibonacci retracement)
Target = new 52-week low (will trail stop)
Dividend Date = n/a

Notes = This setup did not yet trigger, but remains on our watchlist going into today. See our May 28 commentary for explanation of this setup. FYI, subscribers with non-marginable, cash accounts might consider buying DTO or SZO, inversely correlated “short ETFs,” rather than selling short USO, if it triggers. However, our “official” play is a short sale of USO.

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.

    position summary

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  • Per Intraday Trade Alert, we entered a new short position in GDX last Friday. Trade details are shown above.
  • USO did not yet hit our trigger price for short entry, but it may attempt to make another leg higher, which would trigger our short entry.
  • 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

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