Will the US Oil Fund (USO) break out this time?


Closing above their recent highs, stocks scored another round of broad-based gains yesterday, but light turnover showed a lack of institutional buying interest. Both the S&P 500 Index and Dow Jones Industrial Average gained 0.7%, while the Nasdaq Composite rose 0.5%. The small-cap Russell 2000 and S&P MidCap 400 indices advanced 1.0% and 0.6% respectively. All the main stock market indexes closed near their intraday highs, but a negative reaction to key earnings reports from Apple and IBM sparked a sharp selloff in the after-hours futures markets.

Total volume in the NYSE receded 30% below the previous day’s level, while volume in the Nasdaq similarly ticked 26% lower. In both exchanges, turnover slipped back below 50-day average levels. Notably, market internals were mixed. In the NYSE, advancing volume exceeded declining volume by a margin of nearly 3 to 1. However, the adv/dec volume ratio in the Nasdaq was fractionally negative, despite the higher closing price. This tells us the buying in the Nasdaq was not very broad-based.

Yesterday, the US Oil Fund (USO) showed clear relative strength to the broad market by rallying 2.3%. If that bullish momentum persists into today’s session, USO should finally break out above the high of its recent consolidation and key horizontal price resistance. The daily chart is shown below:


On October 15, USO sold off to “undercut” lower channel support of its multi-week trading range. This was bullish, as it had the effect of shaking out the “weak hands,” thereby absorbing overhead supply and enabling USO to more easily move higher. As such, there is a good chance USO will break out above the resistance levels shown on the chart above, enabling it to enter into a new uptrend. Since our October 13 buy entry, USO has merely been hanging out near our entry point, but we believe our patience will soon pay off. In addition to USO, the Retail HOLDR (RTH), discussed in yesterday’s commentary, should also be monitored for potential breakout in today’s session.

In the October 18 issue of The Wagner Daily, we pointed out the curious divergence between technology and financial stocks in last Friday’s session. We also said that such divergence frequently appears ahead of significant market corrections. Yesterday, we saw the exact opposite reaction, in which the financial sector showed major relative strength to the broad market, while tech stocks hung low. The sudden shift from one day to another tells us we are dealing with a market that is apparently becoming increasingly indecisive. In and of itself, this does not mean traders should suddenly abandon the long side of the market. However, a healthy degree of overall caution and alertness with one’s trading operations should be considered right now.

After the close of yesterday’s trading, tech giant Apple, Inc. (AAPL) trumpeted its latest quarterly earnings report. Although the company exceeded earnings estimates, sales of their popular iPad devices fell short of expectations. This sent the stock about 6% (20 points) lower in after-hours trading, obviously dragging down the Nasdaq futures along with it. Going into today’s session, traders will be focused on whether or not institutions step in to buy AAPL into weakness. If they don’t, we could see a negative reaction spread to the broad market as well. If that occurs, we would actually welcome a substantial correction in the broad market, as it would create new buying opportunities in strongly trending ETFs that pull back to support. If you have not already done so, this is a good time to consider raising your protective stops on winning long positions, so that a nice profit can be secured in the event of a sudden reversal.

Today’s Watchlist:

There are no new setups in the pre-market today. However, now that we have closed a few trades, we have freed up buying power for new opportunities. If any new trades are spotted during the day, we will 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.

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  • No changes to open positions at this time.
  • 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.
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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader