Waiting For a Bounce to Pounce: (EPI) (XLB)


Stocks posted strong gains on Thursday but on light trade. Despite Thursday’s significant move equities remain in a wide four day trading range. All five major indices closed higher on the session. The small-cap Russell 2000 and the S&P MidCap 400 led the move higher by posting gains of 5.4% and 5.3% respectively. Both the Nasdaq and the S&P 500 tacked on 4.6% while the Dow Jones Industrial Average added just under 4.0%.

For a second straight day market internals were mixed. Volume dropped by 7.6% on the Nasdaq and 16.0% on the Big Board. However, the ratio of advancing volume to declining volume ended the session at an impressive 32 to 1 on the NYSE and 29 to 1 on the Nasdaq. Despite an impressive price move in the market, the absence of volume suggests a lack of institutional participation in the rally. This also helps to explain why the market was unable to break out of the four day trading range.

During the recent market plunge, the S&P Select Sector Materials SPDR ETF (XLB) sliced through support of all of its moving averages and its long term uptrend line. Over the past several sessions XLB has been rallying back toward these former support levels which should now serve as resistance. An “overcut” of the former uptrend line and/or the 20-day EMA could provide a short entry trigger for XLB. We will continue to monitor XLB closely for a possible short entry near these key marks.

The Wisdom Tree India Earnings ETF (EPI) has been a downtrend since November of 2010. In early May EPI lost support of its 200-day MA and has been trading below this key mark ever since. Further, during the most recent market downturn, this ETF dropped below a key support level near $22.00. EPI now faces formidable resistance into any rallies and could offer a shorting opportunity with a move into its down trending 20-day EMA.

Volatility continues to dominate the market and is considered quite bearish. For a market to repair itself after a massive selloff, an extended period of low volatility is generally required. The longer that volatility is present, the more likely the market will remain under downward pressure. Consequently we continue to focus on identifying potential short setups into a rally.

Today’s Watchlist:

There are no new setups for today. As always, we will send an intraday alert if any new trades are made.

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

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  • No trades were made.
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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader