Meandering through another confused and non-committal session, the major indices finished with mixed results yesterday. After hours of range-bound choppiness, the Nasdaq Composite gained 0.4% and the S&P 500 edged 0.2% higher, but the Dow Jones Industrial Average slipped 0.2%. Small and mid-caps outperformed for a change. The Russell 2000 and S&P Midcap 400 indices rallied 1.5% and 1.2% respectively. Showing a bit of resilience, all the major indices closed near their best levels of the day, but a clear intraday trend was lacking.
Total volume in both the NYSE and Nasdaq was 11% lighter than the previous day’s levels. The lighter turnover across the board made yesterday’s modest gains even less impressive. However, as is typically the case, the slower trade can probably be attributed to investors and traders waiting on the sidelines, ahead of today’s scheduled Fed announcement on interest rates. In the NYSE, advancing volume exceeded declining volume by a margin of 2 to 1, a slight improvement over the previous day’s session. The Nasdaq adv/dec volume ratio was positive just under 3 to 2.
Although commodities frequently have an inverse relationship to the price of the U.S. dollar, spot gold surged to a new record high yesterday, as the U.S. Dollar Bull Index (UUP) ticked modestly higher as well. Below, the breakout is shown on the daily chart of SPDR Gold Trust (GLD), a popular ETF proxy for the price of spot gold futures:
Though we’ve traded precious metals ETFs several times this year, most recently with a large winning trade in Gold Double Long (DGP), we did not buy yesterday’s gold breakout. Over the years, we’ve learned that breakouts in gold and silver ETFs have a habit of subsequently pulling back to re-test the breakout levels. As such, we now prefer buying precious metals ETFs on pullbacks to support (such as a 20-day moving average), rather than buying breakouts above a range. While GLD indeed provided a pullback entry point last week, we made a judgment call to pass on a re-entry into gold because the retracement coincided with a strengthening dollar, evidenced by UUP breaking out above its six-month downtrend line and 20-day EMA. Nevertheless, our sister publication, The MTG Stalk Sheet, bought an individual gold stock (IAG) on yesterday’s open, and daytraded it for a quick intraday gain of more than 12% on the trade.
Today’s newsletter is intentionally more brief than usual because about the only thing traders and investors are likely to focus on today is the Federal Reserve Board’s statement on interest rates and economic policy, which will be released at 2:15 pm ET. Though most economists expect the Fed to leave rates unchanged, there is a lot of speculation over whether or not verbiage will be used that implies upcoming changes to policy in the near future. Recently, Australia has raised interest rates twice, while the Fed has, up to this point, made no implication of the need to increase rates. Will that laid-back bias need to change this time around? Many traders and investors, myself included, could find the outcome of today’s meeting to be rather interesting. While whippy, volatile trading action typically follows Fed announcements, be prepared for the possibility of an even stronger than usual reaction, regardless of what is actually said. As usual, we recommend avoiding new positions ahead of the Fed.
Open ETF positions:
Long – UUP
Short – FAZ, EDZ, TBT (three inversely correlated ETFs we’re long)
NOTE: Regular subscribers to The Wagner Daily receive daily updates on the open positions above, as well as new ETF trade setups, including trigger, stop, and target prices. Intraday Trade Alerts are also sent via e-mail and/or mobile phone text message on as-needed basis.
Deron Wagner is the head trader of Morpheus Capital Hedge Fund and founder of Morpheus Trading Group (morpheustrading.com), which he launched in 2001. Wagner’s new book, Trading ETFs: Gaining An Edge With Technical Analysis, was published by Bloomberg Press in August, 2008. Wagner also appears on his best-selling video, Sector Trading Strategies (Marketplace Books, June 2002), and is co-author of both The Long-Term Day Trader (Career Press, April 2000) and The After-Hours Trader (McGraw Hill, August 2000). Past television appearances include CNBC, ABC, and Yahoo! FinanceVision. He is also a frequent guest speaker at various trading and financial conferences around the world.
For a free trial to the full version of The Wagner Daily above, which includes detailed ETF trade setups and daily position updates, or to learn about our other newsletters, visit morpheustrading.com or send an e-mail to deron@morpheustrading.com.
